Some of the subject-matter of this item was covered by "Amendment and re-opening of assessments: Policy statement by Commissioner of Inland Revenue" Public Information Bulletin No 123 (January 1984).  Much of that item is now redundant, having been overtaken, for example, by the Standard Practice Statement on s 113 of the Tax Administration Act 1994 “SPS 16/01 Requests to amend assessments” Tax Information Bulletin Vol 28, No 4 (May 2016).  Any remaining parts of the item that were still relevant are superseded by this current item.

This item may overlap with "Remission of penalties and interest - SPS 05/10" Tax Information Bulletin Vol 17, No 9 (November 2005), insofar as that item deals with remission where Inland Revenue has given incorrect advice to a taxpayer.  New legislation provides that no interest will be charged where a taxpayer relies on a "Commissioner’s official opinion".  However, SPS 05/10 still applies to a variety of circumstances where it is possible to obtain remission not covered by the new legislation.

Tax Information Bulletin - Vol 24 No 10 December 2012

All legislative references are to the Tax Administration Act 1994 unless otherwise stated.

Introduction

1. From time to time, the Commissioner provides advice to taxpayers to help them to comply with the tax laws. This advice is provided in different contexts and to different audiences (eg, advice to specific taxpayers and advice to the wider public).
2. This item clarifies some issues in relation to advice the Commissioner gives. In particular, it considers:
   • the legal status of the Commissioner’s advice and when the Commissioner will be bound by statements made
   • taxpayers' liability for substantive tax, penalties and use of money interest where the Commissioner's advice is incorrect
   • application dates for public statements
   • the Commissioner's position in relation to court and tribunal decisions that the Commissioner believes do not accurately reflect the law, and
   • the status of Standard Practice Statements the Commissioner issues.

Status of the Commissioner's advice

3. Taxation laws are made by Parliament, not the Commissioner, or Inland Revenue. It is acknowledged that, as a matter of principle and good tax administration, taxpayers should generally be able to rely on advice the Commissioner gives. However, the Commissioner is under an obligation to apply the law correctly. With the exception of the binding rulings regime, the law is not changed merely by the Commissioner giving a different view (whether published or otherwise).
4. The binding rulings regime was enacted in 1995 to help taxpayers achieve certainty in relation to their tax affairs through public rulings and taxpayer specific private and product rulings. Where a binding ruling has been issued that applies to a taxpayer, that taxpayer, by following the binding ruling, can be certain about how the Commissioner will apply the law (an application for a private ruling must disclose all relevant facts and documents relating to the arrangement for which the ruling is sought).
5. By contrast, as a matter of practice, Inland Revenue will generally follow public statements. However, the Commissioner is not strictly bound by such statements or other advice unless they are binding rulings that apply to the particular taxpayer and arrangement: CIR v Ti Toki Cabarets (1989) Ltd (2000) 19 NZTC 15,874, Lemmington Holdings Ltd (No 2) v CIR (1983) 6 NZTC 61,576 and Westpac Banking Corporation v CIR (2008) 23 NZTC 21,694. This statement outlines the Commissioner’s approach to advice that is not binding on the Commissioner.

Incorrect advice - liability for substantive tax

6. From time to time the Commissioner will take the view that advice that has previously been given is incorrect. This may occur when:
   • a court decision clarifies the law, which shows that the earlier advice is incorrect
   • the Commissioner discovers an error in the earlier advice, or
   • the Commissioner reconsiders the earlier advice and takes a different view.
7. This raises issues about the liability of taxpayers who have returned their tax based on the advice given.
8. Where the Commissioner has given incorrect advice (other than a binding ruling), this does not operate so as to change the tax legally payable on the basis of the correct application of the law. This is because the Commissioner cannot simply choose to alter the statutory basis of assessment: s 6A, Vestey v IRC (1979) 3 All ER 976 and R v IRC, ex p Wilkinson [2005] BTC 281. Any assessments previously made on the basis of that incorrect advice are, therefore, incorrect and can potentially be corrected by the Commissioner.
9. The question that arises is whether the Commissioner will amend the assessment to correct it. This statement now considers different situations where this can arise.

Formal settlements and time barred assessment

10. Where a taxpayer has entered into a formal settlement with the Commissioner, this settlement will not be reversed.
11. Similarly, if the statutory time bar applies to the original assessment, the Commissioner cannot amend that assessment.

Published public statements

12. The following paragraphs apply to situations where the Commissioner's view of the law changes from what has been outlined in a published public statement that is still authoritative (that is, not outside any applicable application date and not overtaken by legislation or a later public statement).
13. Published public statements are statements that Inland Revenue produces in hardcopy and/or on Inland Revenue's website. These include formal statements such as interpretation statements, interpretation guidelines, and Questions We've Been Asked as well as other publications such as Inland Revenue guides, Agents Answers and Business Tax Updates. Published public statements apply to all taxpayers that come within their terms.

Where a new position is more favourable for taxpayers

14. In cases where the change in view in a published public statement creates a more favourable position for taxpayers, the Commissioner will apply the principles set out in the Standard Practice Statement on s 113 on a case by case basis to determine whether to amend past assessments. These are currently set out in “SPS 16/01 Requests to amend assessments” Tax Information Bulletin Vol 28, No 4 (May 2016) (the SPS). Some of the relevant considerations include:
    • whether a taxpayer has made an error as a result of relying on advice given by an Inland Revenue officer
    • whether the taxpayer has provided all relevant information with their amendment request
    • the length of time since the incorrect position was taken
    • whether the resources required to make the amendment would be disproportionate to the amount of tax at stake, and
    • any other relevant care and management considerations.
15. However, in any case, all of the relevant considerations referred to in the SPS must be weighed. For the purposes of applying the SPS, following an incorrect position set out in a published statement of the Commissioner will be treated as a genuine error rather than a "regretted choice" (see paragraph 15 of the SPS).

Where a new position is less favourable for taxpayers

16. Where the change in view taken in a published public statement creates a less favourable position for taxpayers, the Commissioner will generally apply the new position prospectively from a stated date or income year or assessment period (as most appropriate).
17. However, in exceptional cases, prospective application will not be appropriate, and immediate or retrospective application will be necessary or desirable (subject to the operation of the time bar). In deciding whether to use s 113 to apply a new position retrospectively, the Commissioner will apply the care and management principles in sections 6 and 6A. Factors the Commissioner will consider include (but are not limited to):
    • the amount of revenue at stake
    • the number of taxpayers affected - including the extent to which some taxpayers have been following the earlier incorrect position while others were taking the correct position
    • the resources necessary to identify, audit and reassess the relevant taxpayers
    • whether retrospective application is likely to undermine or support the integrity of the tax system, and
    • whether retrospective application is likely to promote or adversely affect taxpayer compliance.
18. For more details on the Commissioner’s interpretation of care and management principles, see "IS 10/07: Care and management of the taxes covered by the Inland Revenue Acts - Section 6A(2) and (3) of the Tax Administration Act 1994" Tax Information Bulletin Vol 22, No 10 (November 2010).

Taxpayer specific advice

19. The following paragraphs apply to situations where the Commissioner has a different view of the law than was previously communicated to a particular taxpayer in specific advice to them (other than in a binding ruling).

Where a new position is more favourable for the taxpayer

20. Where taxpayer-specific advice replaces earlier advice and creates a more favourable position for the taxpayer, the Commissioner will apply the principles set out in the Standard Practice Statement on s 113 on a case by case basis to determine whether past assessments will be amended to reflect the more favourable position. As noted above, some of the relevant considerations include:
    • whether a taxpayer has made an error as a result of relying on advice given by an Inland Revenue officer
    • whether the taxpayer has provided all relevant information with their amendment request
    • the length of time since the incorrect position was taken
    • whether the resources required to make the amendment would be disproportionate to the amount of tax at stake, and
    • any other relevant care and management considerations.
21. However, in any case, all of the relevant considerations referred to in the SPS must be weighed. For the purposes of applying the SPS, following specific incorrect advice given by the Commissioner will be treated as a genuine error rather than a "regretted choice" (see paragraph 15 of the SPS).

Where a new position is less favourable for the taxpayer

22. Where taxpayer specific advice replaces earlier advice and creates a less favourable position for the taxpayer, the Commissioner will apply the principles in the care and management interpretation statement to determine whether to apply s 113 to amend the assessment of a taxpayer who has relied on that earlier advice (other than in a binding ruling). This will involve considering factors such as those set out above in relation to published public advice. In the case of advice given to a specific taxpayer these factors are generally more likely to support an amended assessment than in the case of reliance on incorrect published public advice.

Application dates for public statements

23. The Commissioner acknowledges that it is desirable for taxpayers to have certainty around when changes in view will be applied from. This is particularly the case when changes in view are unfavourable to taxpayers.
24. Where an incorrect public statement is replaced by a new published public statement that is less favourable to taxpayers, the new statement will explicitly state the date from which it will apply or, in exceptional cases, that it applies to prior periods.
25. An application date will also be provided where a published public statement represents a change in the Commissioner’s official position that is less favourable to taxpayers even if the previous position was not set out in a published public statement.
26. If there is no existing position an application date will not generally be necessary. However, an application date may be stated if it is thought this will assist taxpayers.

Commissioner’s official opinions - liability for interest and shortfall penalties

27. The previous part of this statement considered the position in relation to taxpayers' liability for substantive tax where the Commissioner changes a previously communicated view. The next part of the statement considers taxpayers' liability for interest and shortfall penalties where the Commissioner has given a "Commissioner's official opinion". Section 120W provides that for "Commissioner’s official opinions" given on or after 7 September 2010:
    • A taxpayer that, but for this section, is liable to pay interest on unpaid tax to the Commissioner, is not liable to pay that interest to the extent to which it arises because they relied on a Commissioner's official opinion.
    For Commissioner’s official opinions that are in writing, the opinion will be "given" on the date it is issued.
28. Further, s 141B(1D) provides that:
    • A taxpayer does not take an unacceptable tax position to the extent to which they have taken their position because they have relied on a Commissioner’s official opinion.
29. This exclusion applies to shortfall penalties under sections 141A (not taking reasonable care), 141B (unacceptable tax position), 141C (gross carelessness) and 141D (abusive tax position). Sections 141A to 141D all effectively require taxpayers to have taken an "unacceptable tax position": sections 141A(3), 141B(2), 141C(4), 141D(4) and s 3 definition of "acceptable tax position".
30. Therefore, to the extent that taxpayers take an incorrect tax position because they rely on a "Commissioner's official opinion", they will not be liable for interest on unpaid tax, or for a shortfall penalty under sections 141A, 141B, 141C and 141D. The term "Commissioner’s official opinion" is defined in s 3 as:
    • (a) means, for a taxpayer,-
      • (i) an opinion of the Commissioner concerning the tax affairs of the taxpayer, given by the Commissioner, either orally or in writing, after all information relevant to forming the opinion has been provided to the Commissioner, if that information is correct:
      • (ii) a finalised official statement of the Commissioner, in writing, if it specifically applies to the taxpayer’s situation.
    • (b) does not include a private binding ruling
31. There are two types of "Commissioner’s official opinion" - taxpayer specific opinions and official statements. The first type is an opinion the Commissioner gives in relation to the tax affairs of a specific taxpayer. Therefore, only the taxpayer concerned may rely on the opinion. The opinion can be oral or written. However, the Commissioner must first have been provided with all information relevant to forming the opinion, and that information must be correct. Consequently, if the taxpayer has not provided all the information that is relevant to the Commissioner reaching a correct view (whether intentionally or otherwise), or not all of the relevant information is correct, then the view given will not be a "Commissioner’s official opinion".
32. The second type of "Commissioner’s official opinion" is a finalised official statement of the Commissioner. These must be in writing and will be published by Inland Revenue, in hardcopy and/or on the Inland Revenue website. Examples include interpretation statements, interpretation guidelines, Questions We've Been Asked, Inland Revenue guides, Agents Answers and Business Tax Updates. An official statement must apply to a taxpayer’s situation specifically before a taxpayer is able to rely on that statement. These statements must also be finalised. Draft statements the Commissioner issues are not "Commissioner’s official opinions". However, the Commissioner will generally not impose shortfall penalties under sections 141A - 141D when taxpayers follow the position set out in a draft statement.
33. Where advice given is not a "Commissioner's official opinion", then the provisions relating to interest and shortfall penalties will apply to taxpayers in the usual way (see also "Remission of penalties and interest - SPS 05/10" Tax Information Bulletin Vol 17, No 9 (November 2005)).

Standard Practice Statements

34. Standard Practice Statements are general guidelines the Commissioner issues. These statements describe how the Commissioner will usually exercise a statutory discretion or deal with practical issues arising out of the administration of the Inland Revenue Acts. The Commissioner will usually apply positions set out in Standard Practice Statements. However, there may be times where it is appropriate for the Commissioner not to follow a position set out in a Standard Practice Statement for example, if it is necessary for the proper exercise of the Commissioner’s discretion in a particular fact situation. In this regard, as with all statements (except binding rulings) Standard Practice Statements are not binding on the Commissioner.
35. Standard Practice Statements are, however, a "Commissioner’s official opinion". To the extent that taxpayers take a tax position in reliance on a Standard Practice Statement and that tax position is incorrect, sections 120W and 141B(1D) apply as discussed above.

Court or tribunal decisions

36. Occasionally, a court or tribunal may make a decision that the Commissioner does not consider correctly reflects the law. The Commissioner may appeal the decision or seek to test the issue in a subsequent case. In such cases, because the Commissioner considers the decision in question does not reflect the law correctly, the approach taken by the Commissioner may not be modified to reflect the decision until its correctness has been established.
37. Where this is the case, the Commissioner will advise taxpayers in a Tax Information Bulletin as soon as practicable of the position being taken and that taxpayers should not rely on Inland Revenue adoption of the decision in the interim. The Commissioner will generally not impose shortfall penalties under sections 141A - 141D when taxpayers follow the position taken in a current court decision.
38. From time to time there will also be cases where a decision is confined to its own facts. In such cases the decision will not be precedential and may not be applied outside of the unique facts of the case. Where possible the Commissioner will set this out in a decision impact statement following the decision or subsequently advise taxpayers in a Tax Information Bulletin.

References

Related rulings / statements

"IS 10/07: Care and management of the taxes covered by the Inland Revenue Acts - Section 6A(2) and (3) of the Tax Administration Act 1194" Tax Information Bulletin Vol 22, No 10 (November 2010)
"Remission of penalties and interest - SPS 05/10" Tax Information Bulletin Vol 17, No 9 (November 2005)
“SPS 16/01 Requests to amend assessments” Tax Information Bulletin Vol 28, No 4 (May 2016)

Subject references

Advice
Care and management
Commissioner's official opinions

Legislative references

Income Tax Act 2007: ss 141A, 141B, 141C, 141D
Tax Administration Act 1994: ss 3 (definition of "Commissioner's official opinion") 6, 6A, 113, 120W

Case references

CIR v Ti Toki Cabarets (1989) Ltd (2000) 19 NZTC 15, 874
Lemmington Holdings Ltd (No 2) v CIR (1983) 6 NZTC 61,576
R v IRC, ex p Wilkinson (2005) BTC 281
Vestey v IRC (1979) 3 All ER 976
Westpac Banking Corporation v CIR (2008) 23 NZTC 21,694