Part of claim that did not comply with strict procedural requirements struck out by Taxation Review Authority

Summary

The Taxation Review Authority (“TRA”) upheld an application by the Commissioner of Inland Revenue (“the Commissioner”) to strike out those parts of the disputant’s Notice of Claim that related to the Commissioner’s 2011 reassessment of a GST return filed by the disputant in 2008.

Impact

This decision confirms that the procedural requirements for commencing challenge proceedings are strictly adhered to. Where a challenge has been filed that does not meet those requirements, it is not possible to “piggy back” the claim onto a challenge which has been correctly brought, as the non-compliant parts of the challenge will be struck out pursuant to s 138H.

Facts

On 30 May 2011 the Commissioner issued a notice of (re)assessment to the disputant for the GST period ended 31 July 2008 amending the GST refund of $144,706.72 claimed by the disputant to nil (2008 Reassessment). This reassessment was made pursuant to s 89C(eb) of the Tax Administration Act 1994 (“TAA”).

A Notice of Proposed Adjustment (“NOPA”) was received by the Commissioner on 29 July 2011.

On 3 August 2011 a Notice of Claim was filed by the disputant in the TRA and served on the Commissioner.

The Commissioner sent a letter dated 25 August 2011 to the disputant stating that the Commissioner would be rejecting the NOPA in full. The Commissioner’s Notice of Response (“NOR”) was issued on 26 September 2011.

On 3 November 2011 the Commissioner received a letter from the disputant rejecting the NOR.

On 24 November 2011 the Commissioner asked the disputant to confirm whether he intend to continue the challenge proceeding already commenced in the TRA or to pursue the disputes process with the Commissioner. The disputant replied stating that he intends to pursue the challenge proceedings and request that the disputes process “be put in abeyance in the meantime”.

A Notice of Discontinuance of the TRA proceeding was filed by the disputant on 30 September 2013. On the same date, he wrote requesting that the Commissioner progress the dispute. The Commissioner replied stating that by discontinuing the TRA proceeding, the disputant had accepted the Commissioner’s assessment. Further, she stated that the challenge had been finalised and there was no longer any dispute to progress.

On 3 August 2015 the disputant wrote to the Commissioner noting that it was more than 4 years since the disputant’s NOPA was issued and requesting that the refund be paid. On 19 September 2016 the Commissioner sent a letter to the disputant stating that no GST refund would be paid.

In 2017 the disputant issued challenge proceedings in the TRA in respect of two disputable decisions: (1) the cancellation of the disputant’s GST registration; and (2) the 2008 Reassessment. The Commissioner applied to strike out those parts of the 2017 Notice of Claim that related to the 2008 Reassessment on the basis of lack of jurisdiction or, alternatively, abuse of process.

Decision

The judgment briefly set out the principles applying to strike out applications – that a cause of action may only be struck out where it is so clearly untenable that it cannot possibly succeed, and that the jurisdiction is to be exercised sparingly and only in clear cases.

The disputant submitted that s 138B(1) was the applicable subsection and the Commissioner submitted that s 138B(3) applied. Section 138B(1)(a) allows the disputant to challenge an assessment by commencing proceedings in a hearing authority if the assessment includes “an adjustment proposed by the Commissioner” which the disputant has rejected within the applicable response period.

The Judge referred to Allen v Commissioner of Inland Revenue [2006] NZLR 1, where the Court of Appeal considered the term “adjustment proposed” in s 138B(3). The Court stated that the term “adjustment proposed” in s 138B(3) refers to an adjustment proposed in a NOPA. The TRA in the present case noted that the words “adjustment proposed” are also used in s 138B(1) and (2) and it has been accepted that the same meaning applies in each of these subsections.

The Commissioner issued the 2008 Reassessment pursuant to s 89C(eb). Under this subsection, the Commissioner can make an assessment without first issuing a NOPA where she has reasonable grounds to believe that the taxpayer has been involved in fraudulent activity. Judge Sinclair confirmed that where the Commissioner issues an assessment without first issuing a NOPA, and the disputant wishes to contest that assessment, then the disputant is required to issue a NOPA and s 138B(3) applies.

Where pursuant to s 138B(3)(a), the Commissioner issues a NOR within the applicable response period rejecting the adjustment proposed by the disputant and does not subsequently issue an amended assessment, the disputant is entitled under s 138B(3)(b) to challenge that assessment by commencing proceedings in a hearing authority within the “response period of the written disputable decision by the Commissioner that the proposed adjustment will not be adjusted”.

The TRA stated that the claim relating to the 2008 Reassessment included in the Notice of Claim filed in 2017 had not been filed within any applicable response period (which would have commenced in 2011). Furthermore, it is not possible to overcome the difficulties in this situation by endeavouring to “piggy back” the claim on a challenge which has been correctly brought. No application was made for extraordinary circumstances.

The TRA stated that the disputant breached the strict procedure for the commencement of a challenge proceeding and the TRA has no discretion and no jurisdiction to consider the claim. The cause of action relating to the 2008 Reassessment was accordingly struck out.

In light of her decision, the Judge did not consider the alternative argument of abuse of process.