Transitional Issues (Sep 96) (WITHDRAWN)

Introduction

This statement sets out Inland Revenue's policy on how the transitional provisions of the new disputes resolution regime will be applied.

The procedures applying to notices of assessment issued on or after 1 October 1996 may in some cases be under the old regime and the procedures applying to notices of assessment issued before 1 October 1996 may in some cases be under the new regime.

The transitional provisions generally apply only to notices of assessment or Notices of Proposed Adjustments issued on or before 31 March 1997.

The Legislation

The Tax Administration Act 1994 and the Goods and Services Tax Act 1985 provide for a new regime to deal with taxation disputes in relation to notices of assessments issued on or after 1 October 1996. Details of this are set out in TIB Volume 8, Number 3 (August 1996). Disputes on notice of assessment issued before 1 October 1996 are generally dealt with under the previous procedures.

Section 124A of the Tax Administration Act 1994 and section 8(2) and (3) of the Goods and Services Tax Amendment Act 1996 make provision for transitional arrangements so that if the Commissioner and taxpayer agree, a notice of assessment:

• Issued before 1 October 1996, can be treated as if it had been issued on or after that date in which case the new provisions will apply to the notice.
  
  
• Issued on or after 1 October 1996, can be treated as if it had been issued before that date in which case the old provisions, the objection rights and case stated procedure, will apply.

Practical Issues

• Agreement to use the transitional provisions can be instigated by either the Commissioner or the taxpayer.
  
  
• The written agreement between the taxpayer and the Commissioner will need to refer to section 124A(2) of the Tax Administration Act 1994 or section 8(3) of the Goods and Services Tax Amendment Act 1996, and specify the notice of assessment or reassessment that the agreement refers to.
  
  
• Section 124A(1) of the Tax Administration Act 1994 is read separately to section 124A(2), and section 8(2) of the Goods and Services Tax Amendment Act 1996 is read separately to section 8(3). The latter sub-sections are to be read as if they are stand alone sections dealing specifically with the transitional provisions.
  
  
• Where agreement has been reached to use the objection procedures, these cases will not be referred to the Adjudication Unit.

Policy to be applied

Notice of Assessment before 1 October 1996

The transition provisions permit taxpayers, with agreement from the Commissioner to challenge an assessment under the new disputes resolution process.

When will the Commissioner agree to this?

The Commissioner will agree to this process when;

• the Commissioner wants to treat the same issue covering different periods, under the same disputes process.
  
• a multi-year audit is being undertaken and assessments have been issued for early years / periods (for example, due to the statute bar limitation, or if the parties have agreed to disagree on an issue) and the later years/periods, with similar issues are finalised after 1 October 1996.
  
  
• one court case only will result from this process.

How long will the Commissioner agree to change from the old process to the new?

The Commissioner will agree to a change to the process for six months, to 31 March 1997. After this date the new disputes resolution procedures process must be used. It should be noted that agreement must be reached by 31 January 1997 so a Notice of Proposed Adjustment (NOPA) can be issued by the taxpayer by 31 March 1997.

There is one exception to the 31 March 1997 cut-off date. This is when an audit covers both pre and post 1 October 1996 assessments. The aim is to have the same disputes process apply to all assessment notices. It is preferable that the old process apply, by having post 1 October 1996 assessments objected to instead of issuing a NOPA.

What if the assessment is already at the objection stage?

If the notice of assessment is already at the objection stage, the Commissioner must follow the objection process, and not the new regime.

When should the NOPA be filed?

Issuing a NOPA instead of lodging an objection is not to be used as a means of extending the time to challenge an assessment. As the notice of assessment would have been issued before 1 October 1996 , a maximum time in which to file the NOPA is set. This is two months from the date of agreement to switch from the old to the new procedures. It is unlikely that there will be exceptional circumstances to extend the time beyond two months after the agreement to change procedures.

The Commissioner will not agree to a change of methods if the objection period has already expired - the change is not available to circumvent the late objection procedure.  The decision to treat a pre 1 October 1996 notice of assessment must be made by 31 January 1997 as a NOPA will need to be filed by 31 March 1997.

How is Non-Deferrable tax treated?

As a notice of assessment has been issued, the non-deferrable tax (50% of the tax in dispute) must be paid.

Who has the delegation?

A decision on the change of procedure is to be made by Area Managers or above, Manager Technical and Legal Services Group or Managers Corporates.

Notice of Assessment is issued on or after 1 October 1996

The transition provisions permit taxpayers to lodge an objection if agreed to by the Commissioner.

When will the Commissioner agree to this?

The Commissioner will agree to this in the same circumstances as set out in the corresponding paragraph above (relating to notices issued before 1 October 1996 to be treated as being issued after that date).

In addition, there are some circumstances in which the Commissioner can issue a notice of assessment without issuing a NOPA.  These circumstances are detailed on page 18 of TIB Volume 8, Number 3.  The taxpayer will therefore be able to object to the assessment in these cases, provided the parties to the dispute have reached an agreement to do so.

Apart from the above, for the taxpayer to be able to lodge an objection by reason of the change in procedures, there must as a minimum be a written agreement to use the old procedures on or after 1 October 1996 , before the issue of a notice of assessment.  If a NOPA has been issued, the new procedures must apply.

How long will the Commissioner agree to change from the new process to the old?

The answer is the same as set out above for a change from the old to the new procedures.

What if the Assessment is already at the NOPA stage?

If the assessment is already at the NOPA stage, the Commissioner must follow the new process.

When should the objection be filed?

A notice of assessment can be issued without the Commissioner first issuing a NOPA, as permitted by section 89C of the Tax Administration Act 1994. Ordinarily, the taxpayer would have to issue a NOPA to challenge the assessment further. The parties to the dispute can agree to the taxpayer lodging an objection instead of a NOPA. For cases that fall outside the exceptions under section 89C, the parties to the dispute can agree that a notice of assessment be issued instead of a NOPA. In either case, the agreement will also indicate that the objection must be lodged within two months of the date of issue of the notice of assessment.

How is Non-Deferrable tax treated?

As a notice of assessment has been issued, the non-deferrable tax (50% of the tax in dispute) must be paid.

Who has the delegation?

A decision on the change of procedure is to be made by Area Managers or above, Manager Technical and Legal Services Group or Managers Corporates.

Summary

The Commissioner will endeavour to have all periods for the same audit dealt with under the same disputes process so that only one court case can result.

As a general rule though, the Commissioner will seek to have the new disputes process apply for all assessments issued on or after 1 October 1996. This however does not recognise what could be a more practical and speedier resolution to any issues in dispute. Therefore, as a general rule, the Commissioner will not agree to a notice of assessment issued after 31 March 1997 to be allowed to be brought back into the old objection process. However, the exception is when a multi period audit is in progress as at 1 October 1996 , where some of the periods have been assessed before 1 October and therefore fall under the old objection procedures, and the other periods are finalised after 1 October and the new disputes resolution procedures would ordinarily apply. If agreement has been reached with the Commissioner, the taxpayer will be permitted to lodge an objection.  It is expected that this situation will not be very common.


Brian Hutton
National Manager
Operations Policy