Acceptance of late objections under section 126 of the Tax Administration Act 1994 (Mar 97) (WITHDRAWN)

[This standard practice statement applies only to objections lodged under the disputes resolution regime existing prior to 1 October 1996.  For objections under the new disputes resolution regime, refer to Tax Information Bulletin Volume 8, Number 3.  (The new process in relation to child support applies only to deductions from liable persons)]

Summary

This statement sets out Inland Revenue's policy on the acceptance of late objections to assessments (or to determinations or decisions, if applicable) under:

• Section 126(2) of the Tax Administration Act 1994 (previously section 30(2) of the Income Tax Act 1976).
  
  
• Section 33(2) of the Goods and Services Tax Act 1985.
  
  
• Section 72(2) of the Stamp and Cheque Duties Act 1971.
  
  
• Section 90(2) of the Estate and Gift Duties Act 1968.
  
  
• Section 12I of the Gaming Duties Act 1971.
  
  
• Section 73(2) of the Student Loan Scheme Act 1992.
  
  
• Section 92(2) of the Child Support Act 1991.

For the purposes of this statement, "taxpayer" includes "liable person" and "custodial parent" under the Child Support Act.

Background

Inland Revenue has reviewed it's policy on the acceptance of late objections following the Court of Appeal judgement in C of IR v Wilson (1996) 17 NZTC 12,512.

Inland Revenue's policy on the acceptance of late objections to tax assessments was previously set out in Tax Information Bulletin Volume 1, Number 5 (November 1989).  That policy was set following the High Court decision of Gisborne Mills Limited and others v C of IR (1989) 11 NZTC 6,194.

This policy replaces all previous statements.

The Court of Appeal in Wilson considered it impossible to lay down absolute rules as to what factors will always be relevant to the determination of a late objection request.  The Court however in effect, did suggest a Two Step approach in considering requests. In summary, the first step is to consider the taxpayer's explanation for the lateness of the objection. A reasonable explanation is all that is required at this stage. The second step is to consider all the surrounding circumstances and decide whether, as a matter of fairness, the application should be allowed.

The steps are:

Step 1

Consider the explanation given by the taxpayer for failure to make a timely objection.  Where there is significant delay involved, the reasons for the failure to make the application earlier may be a factor to be considered.

Depending on the circumstances, it may be relevant to consider whether the failure to object in time was due to inadvertence, negligence, an agent's action or deliberate decision of the taxpayer.  These factors may weigh against the taxpayer.

A reasonable explanation to explain the delay is all that is required at this point.  For example, where the delay was caused by:

• the ill health of the taxpayer, or
  
  
• other circumstances beyond their control, such as the taxpayer being overseas during the whole of the two month objection period and there were no arrangements in place to receive and deal with notices of assessment,

this will generally be sufficient to satisfy step 1.

If there is some merit in the explanation given, (that is, it provides reasonable justification for the failure to object in time), the application will be considered further in accordance with step 2.

If however, the explanation is inadequate, the application can be rejected making it unnecessary to proceed to step 2.

The details and grounds of the late objection must be given at the same time as the explanation for the delay.

Step 2

The general thrust of the policy remains unchanged from that set out in the Tax Information Bulletin Volume 1, Number 5. The Commissioner is to consider all the circumstances surrounding the application to decide whether, as a matter of fairness, the application should be allowed.

The circumstances to be considered may duplicate those considered in step 1 (reasons for the delay in making the late objection). The task at step 2 is to determine whether, in the light of all the circumstances, and as a matter of fairness, the application should be allowed.  Inland Revenue views step 1 as a means of screening applications, identifying those without merit due to an inadequate explanation for the delay, and rejecting them without further consideration.

An important aspect of the Court of Appeal's judgement is that obtaining a correct assessment is not the paramount consideration in deciding whether to accept a late objection.

A number of factors have been identified (either from Court decisions or previous policy) as potentially relevant in this regard.  These are set out in Appendix A

Late objection in circumstances other than a change in interpretation of the law

• Claims where there is clear entitlement
  
  Where there is an entitlement that is clearly apparent on the face of the claim, an amendment can be made under section 113 of the Tax Administration Act 1994 following the policy set out in Appendix B.
  
  
• Other claims
  
  If the entitlement is established only after further investigation or consideration of the claim (and the entitlement does not rely on a subsequent change in interpretation of the law), the procedures set out in steps 1 and 2 above will need to be followed. A liberal approach should be taken when considering such claims.

Weighting of factors

The weight to be given to the factors which are taken into account in deciding whether or not to accept a late objection, is to be decided by the Commissioner on the circumstances of each case.

Recording the decision

It is important that the factors taken into account in deciding whether or not to accept a late objection be adequately documented.

A convenient way to make the decision is for a staff member to prepare a detailed memorandum addressed to the person who will be making the decision. This memorandum will set out the factors which they have taken into account, the weight to be applied to each factor and the reasons for the recommendation.

The person making the decision is to include their comments including their reasoning and the resulting decision.

Where judicial review proceedings arise, evidence of the decision making process will need to be produced to Court. If the factors taken into account and the reasons for making the decision are recorded at the time, it will improve the evidence which can be produced to the Court.

Who can accept late objections

Team Leaders and above can decide whether or not to accept late objections. However, if the late objection seeks to take advantage of a subsequent Court decision, the decision is to be made by:

• Area Managers
  
  
• Managers Technical and Legal Support Group
  
  
• Managers Corporates

Consideration of the objection

If it is decided to accept the late objection, the objection must then be considered on its merits in detail.

Conclusion

The factors set out in Appendix A are guidelines and must not be applied in a rigid or inflexible manner. They are at all times subject to the overall issue of fairness. In each situation, the particular weight to be applied to the factors considered is to be determined by the Commissioner. Each case must be considered on it's own merits.  Queries can be directed to Paul Skinner, Operations Policy, National Office. DDI (04) 802-6115 or facsimile (04) 802-6100.


Brian Hutton
National Manager Operations Policy

APPENDIX A

FACTORS WHICH MAY BE RELEVANT IN CONSIDERING A LATE OBJECTION REQUEST (TO BE CONSIDERED UNDER "STEP 2" OF THE PROCESS)

Some factors which support acceptance of the late objection are:

• If the proposed objection has apparent merit.  (This is a factor which was not considered under the previous policy, but in the light of Wilson it is now a factor). This may and often will be a relevant factor. This can only be assessed on the material before the Commissioner when asked to accept a late objection and need not be investigated to the point of allowance or disallowance. It will not usually be necessary for the Department to make further enquiry to determine the merits in order to make a decision. In some cases however, a moments check may show that the quantification of liability in the assessment was erroneous.
  
  
• If the objector had consistently asserted their entitlement and only failed to lodge an objection due to the Commissioner's insistence that the entitlement was not available to them.
  
  
• If the taxpayers are part of a consortium who have been involved in the case in an informal way (including, for example, financial contributions) and who have believed that their own case would be reconsidered following the test case.
  
  
• If there are no practical or administrative difficulties in considering the situation at that time (e.g. they are part of a readily identifiable group, the evidence is immediately available and no practical obstacles exist to its application).
  
  
• If the taxpayers have been told that a "test case" would apply to them.
  
  
• When assessment notice sent to the taxpayer's home and taxpayer temporarily away during the objection period.
  
  
• The serious ill health or death of agent, or agent's office shut for annual holidays.
  
  
• When granting the relief requested would not violate the Commissioner's responsibility to be even handed.
  
  
• When the taxpayer is seeking legal or other professional advice.
  
  
• When the taxpayer is ignorant of procedures to follow.
  
  
• When the taxpayer has fallen ill.

Some factors which support declining a late objection are:

• If a taxpayer has a professional tax adviser Inland Revenue may be reluctant to accept a late objection as agents should generally be aware of the legislative requirements. Omitting to lodge an objection because of an oversight by the taxpayer or agent (or agent's staff) will usually not constitute satisfactory grounds.
  
  
• The extent to which an objection is late and any history of making late objections by either the taxpayer or agent.
  
  
• The Commissioner would not be required to exercise discretion where the taxpayer had never contemplated seeking a benefit but had endeavoured to take advantage of a subsequent change in the interpretation of the law, such as by way of a subsequent court decision or issue of a standard practice statement.

All circumstances are to be considered. The above factors are guidelines only and are not exhaustive. They are not intended to restrict the discretion given to the Commissioner. Decision makers should always remain open to the possibility of new factors arising in any case that may make it unfair not to accept the objection.

APPENDIX B

LATE OBJECTIONS AND AMENDMENT OF ASSESSMENTS UNDER SECTION 113 OF THE TAX ADMINISTRATION ACT 1994

In the past it has been Inland Revenue's policy to treat any request by the taxpayer concerned to reopen an assessment as a late objection. In some circumstances however, an amendment under section 113 of the Tax Administration Act 1994 (section 23 of the Income Tax Act 1976) is the correct means for dealing with such matters. An amendment under this provision is appropriate (even if it has resulted from a request by the taxpayer concerned) where the error in the assessment is apparent on the face of the claim itself. For example, arithmetical errors or unclaimed rebates; claims which, had they been made at the appropriate time, would have been accepted without further consideration.

Note that there may be rare circumstances where the discretion to amend under section 113 is not exercised even with such claims as these, for example excessive and unexplained delay.

However, if there is any doubt as to the entitlement claimed (or liability disclosed) by the taxpayer, an amendment under section 113 is not appropriate. In these circumstances the matter should be considered under the objection procedure of section 126 of the Tax Administration Act 1994 (section 30 of the Income Tax Act 1976). This procedure has the role of examining the merit of claims and accordingly is the appropriate mechanism where any consideration of the correctness of the claim is necessary.

Circumstances where a request to reopen an assessment are properly considered under the objection procedure are where:

• The claim would be disallowed under existing policy.
  
  
• The merit of the claim needs to be examined.
  
  
• Further matters need to be examined to substantiate the claim; for example, if there is any factual uncertainty, or any claim by the taxpayer of their intention which the Commissioner may wish to verify.
  
  
• Where it appears the taxpayer may be endeavouring to take advantage of a change in policy or a decision affecting another taxpayer, when they had never contemplated seeking a benefit under the taxing legislation at the appropriate time.

If the request to reopen is made late, it will be necessary to consider whether the request should be accepted in accordance with the "late objection policy".

Situations may arise where a request to reopen an assessment requires the use of both, that is sections 113 and 126. For example, a request may arise for an unclaimed rebate or admission of undisclosed income which could give rise to a section 113 amendment. The same request or admission may ask for the late acceptance of a share loss objection requiring consideration under section 126. In these circumstances, the policy will need to be applied separately to the different elements of the request.

The above also applies to equivalent provisions in other Inland Revenue Acts:

• Goods and Services Tax Act - sections 27(2) and 33
  
  
• Estate and Gift Duties Act - sections 49(3), 82(2) and 90(2)
  
  
• Gaming Duties Act - section 12G(2) and 12I
  
  
• Child Support Act - sections 87 and 92.