Commissioner’s application to strike out a judicial review application granted
Mr Mawhinney, as trustee of the Sixty-Six Auckland Trust applied for a judicial review of decisions by the Commissioner of Inland Revenue and the Taxation Review Authority.
Mr Mawhinney (“the Applicant”), as trustee of the Sixty-Six Auckland Trust (“the Trust”) applied for a judicial review of decisions by the Commissioner of Inland Revenue (“the Commissioner”) and the Taxation Review Authority (“the TRA”).
The Trust challenged:
- The Commissioner’s decision not to complete the disputes process pursuant to the Trust’s notice of proposed adjustment (“NOPA”);
- The Commissioner’s decision to invoke s 89C(eb) in respect of the 2008 reassessment; and
- The TRA’s decision to strike out its challenge in relation to the 2008 reassessment.
The Commissioner applied to strike out the application for judicial review on the basis the Court had no jurisdiction to hear most of the complaint, and even if there was jurisdiction, the statement of claim did not disclose an arguable cause of action and was an abuse of process.
The Court found for the Commissioner and struck out the proceeding for lack of jurisdiction. The Court also noted that if it was wrong in that conclusion, the statement of claim disclosed no arguable cause of action and struck it out on that basis.
The Court confirmed that the disputes and challenge processes cannot be engaged concurrently. If a taxpayer utilises its challenge rights, its right to continue with a dispute comes to an end. If a taxpayer discontinues its challenge before the Court, it cannot go back and “have a second bite of the cherry” by attempting to restart or continue the disputes process with the Commissioner.
This case revolves around GST returns filed by the Trust. For the period ended 31 July 2008, the Trust claimed a GST refund of $144,706.72 on the basis it had purchased a property for approximately $1.3 million. Then, for the period ended 31 March 2009, the Trust returned GST output tax of $144,444.44 on the basis it had sold the property for approximately $1.3 million.
The Commissioner formed the view the Trust was not carrying on any taxable activity. Accordingly, on 30 March 2011 the Commissioner reassessed the July 2008 refund to nil (“the 2008 Reassessment”) and the March 2009 refund to nil (“the 2009 Reassessment”). The Commissioner did not first issue a NOPA pursuant to s 89C(eb) of the Tax Administration Act 1994 (“the TAA 1994”).
On 4 May 2011, the Commissioner cancelled the Trust’s GST registration with effect from the taxable period ending 31 September 2010. This too reflected the Commissioner’s view the Trust was not carrying on any taxable activity.
On 29 July 2011 the Trust issued a NOPA in relation to the 2008 reassessment initiating the disputes procedure under Part 4A of the TAA. Instead of progressing the disputes procedure, on 3 August 2011 the Trust issued challenge proceedings in the TRA in relation to the 2008 reassessment.
On 26 September 2011 the Commissioner rejected the trust’s NOPA in full by issuing a notice of response (“NOR”).
On 24 November 2011 the Commissioner wrote to the Trust requesting clarification of whether the Trust wanted to go through the disputes procedure or the challenge procedure. The Trust advised the Commissioner it wished to pursue the challenge in the TRA and requested for the disputes procedures to “be put in abeyance in the meantime”.
On 20 January 2012, the Trust registered for GST again effective from 20 January 2012.
On 26 June 2013 the Commissioner applied to strike out the challenge proceedings. Before the strike out application was heard, the Trust discontinued the challenge proceedings on 30 September 2013. On the same day the Applicant wrote to the Commissioner on behalf of the Trust asking to progress the dispute.
On 18 October 2013 the Commissioner declined this request on the basis that by discontinuing the TRA challenge proceedings the Trust had accepted the Commissioner’s assessment.
The Commissioner heard nothing from the Applicant for almost two years until on 3 August 2015 the Applicant wrote to the Commissioner, again on behalf of the Trust, advising that it had been four years since the Trust’s NOPA was issued and requested the excess GST be refunded.
On 19 September 2016 the Commissioner advised the Applicant she did not consider there to be any live dispute or excess GST refund available.
In August 2017 the Trust filed a notice of claim in the TRA in relation to the 2008 reassessment and the cancellation of the Trust’s GST registration with effect from 30 September 2015.
On 29 January 2018 the TRA struck out the application in relation to the 2008 reassessment pursuant to s 138H of the TAA on the basis it had not been commenced within the statutory response period, and therefore did not comply with the requirements of s 138B.
In February 2018 the Trust commenced judicial review proceedings.
In assessing whether there was jurisdiction the Court applied the test from the Supreme Court in Tannadyce Investments Ltd v Commissioner of Inland Revenue  NZSC 158,  2 NZLR 153 where it held that because of s 109 of the TAA judicial review will only be available in limited circumstances where:
- It is not practically possible for a taxpayer to challenge an assessment under Part 8A. This will be rare.
- If the issue concerns some suggested flaw in the statutory process that needs to be addressed outside the statutory regime.
The Court found this proceeding did not fall within either of the two narrow categories.
First, the Court rejected the Trust’s argument that the Commissioner had misinterpreted s 89C(eb) of the TAA, this could not be challenged (because the decision to exercise s 89C(3b) was not an assessment (TAA s 3) or a disputable decision (TAA s138E(1)(E)(iv))) meaning judicial review was the only available remedy to the Trust.
While the Commissioner’s decision to issue the NOPA under s 89C(eb) cannot be challenged, the resulting reassessment can, and was, challenged in 2011. When the Trust discontinued its challenge in 2013, its disputes and challenge rights were exhausted. The Trust “does not get another shot” at exercising its disputes and challenge rights once these rights were exhausted. Second, there was no flaw in the statutory process which needed to be addressed outside the statutory regime. The Trust sought relief that was within the statutory procedures.
Arguable causes of action
The Court considered the Trust’s statement of claim did not disclose any arguable causes of action. The Court rejected the Trust’s grounds for judicial review and held overall that the Commissioner did not err in holding that the disputes procedures in relation to the 2008 reassessment concluded when the challenge rights were properly exercised.
The Trust received incorrect advice that the disputes and challenge processes were to be initiated at the same time. The Trust was not able by law to commence challenge proceedings until the Commissioner issued its NOR on 26 September 2011.
The Court did not accept that the disputes process was intended to only be suspended when the Trust asked the disputes process to “be put in abeyance” following its application to utilise the challenge procedures. The Court considered that the legislation was not designed to allow the two processes to run in tandem meaning the Trust could not swap between the disputes and challenge processes at will.
The Court did not accept that agreement in writing between the Trust and the Commissioner was required for the disputes process to cease. Section 89N(1)(c)(viii) of the TAA clearly permits the submission of a dispute to the court or TRA without completion of the disputes process. That provision is, however, is in addition to the power of the taxpayer to opt out of the disputes process under the former s 138B(3). A taxpayer using the former s 138B(3) did not require the agreement of the Commissioner to do so and the Trust did not in fact seek agreement before initiating the challenge process.
The Court rejected the Trust’s arguments as to why it discontinued the challenge process as immaterial to the issues at hand.
The Court rejected the Trust’s arguments that the Commissioner wrongly omitted to complete the disputes process. The Court confirmed that by discontinuing the challenge process in the TRA, the dispute process was effectively at an end. The Court considered that despite there being no specific provision providing that a notice of discontinuance automatically ends the disputes process, there was no other logical and reasonable outcome based on a purposive interpretation of the legislation. In the Court’s words “the Trust was not able to have a second bite of the cherry”.
High Court Rules 2016, r 15.1(1) (strike out); Tax Administration Act 1994 Parts 4A (disputes procedure), 6 (assessments) and 8A (challenge procedure)