Jacobs-Maxwell v Commissioner of Inland Revenue HC Auckland CIV 2011-419-559 [2011] NZHC 1298; (2011) 25 NZTC 20-094 (25 October 2011)

Last Updated: 2 November 2011

IN THE HIGH COURT OF NEW ZEALAND HAMILTON REGISTRY

_{CIV 2011-419-559}

IN THE MATTER OF the Tax Administration Act 1994

BETWEEN HEATHER ANNE JACOBS-MAXWELL Appellant

AND COMMISSIONER OF INLAND REVENUE

Respondent

Hearing: 26 August 2011

Counsel: D G Hayes for Appellant

M Deligiannis and L A Herbert for Respondent

Judgment: 25 October 2011 at 9:30 AM

_{JUDGMENT OF HEATH J}

This judgment was delivered by me on 25 October 2011 at 9.30am pursuant to Rule 11.5 of the High

Court Rules

Registrar/Deputy Registrar

Solicitors:

Crown Law, PO Box 2858, Wellington Brook Law, PO Box 9600, Hamilton Counsel:

_{D G Hayes, PO Box 9323, Hamilton}

JACOBS-MAXWELL V COMMISSIONER OF INLAND REVENUE HC HAM CIV 2011-419-559 25 October

2011

The appeal

[1] Ms Jacobs-Maxwell appeals against a decision of the Taxation Review Authority (the Authority), given on 11 April 2011.1 She challenges the Authority’s conclusion that the Commissioner of Inland Revenue’s failure to respond to her late notice of proposed adjustment (NOPA) did not amount to a deemed acceptance of her proposed adjustment.2

The facts

[2] In September 2001, the Commissioner filed a statement of claim against Ms Jacobs-Maxwell for $46,725.20 in respect of her 1997, 1999 and 2000 tax. The Commissioner subsequently obtained judgment3 in the sum of $46,825.20 (including

costs)4 in respect of those years. In April 2002, Ms Jacobs-Maxwell’s income tax

return for the period ended 31 March 2001 was filed. At that stage, bankruptcy proceedings were imminent.

[3] Ms Jacobs-Maxwell sought adjustments to the Commissioner’s assessments. However, as he was unable to verify much of the information provided by Ms Jacobs-Maxwell to support her requested adjustments, the Commissioner declined to do so. On 23 January 2007, a final notice for arrears for the income tax periods

1999, 2001, 2004 and 2005 was issued. At that stage, the debt stood at a sum in excess of $67,700.

[4] On Friday 27 November 2009, Ms Jacobs-Maxwell attended a meeting at the offices of Inland Revenue at Hamilton to discuss her tax affairs with officials. She was accompanied by a family friend, Mr Henson (a qualified accountant), and her tax lawyer, Ms Janson. Three Inland Revenue employees were present: Ms

_{Crawford (now Ms Cross), Ms Murphy and Ms Stuttard.}

1 _{Jacobs-Maxwell v Commissioner of Inland Revenue [2011] NZTRA Hamilton 04 (Judge Barber).}

2 _{Tax Administration Act 1994, s 89H(2).}

3 _{This was entered by default on 23 July 2002, in the District Court at Hamilton.}

4 Subsequent adjustments were made to Ms Jacobs-Maxwell’s taxable income in August 2003, some

of which related to shareholders’ salaries in a company called Cool Cars Ltd.

[5] The meeting was called to discuss Ms Jacobs-Maxwell’s tax affairs for the years 1999, 2000 and 2001. Although other years were discussed, the meeting focussed primarily on the 2001 year.

[6] On 3 December 2009, as a result of what Ms Jacobs-Maxwell believed had been said at the meeting, Mr Henson lodged a new NOPA at the Inland Revenue office in Hamilton. Adjustments were proposed for the 1999, 2000 and 2001 tax years. This NOPA was rejected by the Commissioner in a letter dated 4 December

2009 on the grounds that it had been lodged outside the required response period. The letter identified the statutory response period as four months from the date the Inland Revenue received the income tax return for the relevant year.5 Because the income tax returns in question were filed over six years beforehand, the Commissioner’s view was that the NOPA was well out of time.

[7] Ms Jacobs-Maxwell claims that, at the meeting of 27 November 2009, an agreement was struck whereby the Commissioner agreed to ―accept‖ a late NOPA from her. She contends that ―acceptance‖ embodied both agreement to late receipt and treatment as if it had been lodged in time. The Commissioner denies that any agreement to that effect was made.

[8] The Commissioner’s position is that, while it had been left open for Ms Jacobs-Maxwell to lodge a notice, no commitment was made that it would be accepted. In any event, the Commissioner contends both that the relevant statutory procedures do not permit acceptance of a late NOPA in the absence of an

―exceptional circumstance‖ and no such circumstances existed.

[9] Mrs Jacobs-Maxwell challenged the Commissioner’s decision before the

_Authority.

5 Tax Administration Act 1994, s 3(1), definition of ―response period‖ (as at 1 April 2005 to 18

December 2007 and 19 December 2007 to 31 March 2008). The current definition of ―response period‖ (applying from the 2008–2009 income year) is contained in s 89AB, which continues to provide for a four-month response period when the initiating notice is a notice of assessment issued by the taxpayer or a notice of disputable decision issued by the Commissioner. Prior to 31 March

2005, however, the response period was two months from, inter alia, the date of issue of a notice of disputable decision or the date fixed by the taxpayer on their notice of assessment, if the taxpayer fixes a date.

[10] The Authority (Judge Barber) identified the issues that arose for its determination as:

(a) Whether the Commissioner had agreed to accept a late NOPA from

Ms Jacobs-Maxwell;

(b) Whether a valid timely NOPA is a prerequisite to deemed acceptance under s 89H(2) of the Act;

(c) If the Commissioner agreed to accept a late NOPA from Ms Jacobs-

Maxwell, whether such an ―acceptance‖ was ultra vires; and

(d) Whether the issue of deemed acceptance of Ms Jacobs-Maxwell’s late

NOPA had been properly pleaded.

[11] Judge Barber found in favour of the Commissioner. He concluded that:

(a) On the facts, no agreement of the type alleged by Ms Jacobs-Maxwell was reached at the November 2009 meeting. Judge Barber preferred the evidence given by the Commissioner’s witness.

(b) A timely NOPA is a prerequisite to deemed acceptance under s 89H(2) of the Act. An invalid late NOPA is not deemed accepted where the Commissioner fails to issue a compliant notice of response within the applicable response period.

(c) As a matter of law, the Commissioner had no power to accept a taxpayer’s late NOPA without proof of an ―exceptional circumstance‖, under s 89K(1).

(d) The issue of deemed acceptance had not been properly pleaded. For the purpose of this appeal, the first three conclusions assume importance.

[90] Simply put, a valid timely NOPA is a prerequisite to deemed acceptance under s.89H(2) of the [Act]. The Commissioner did not agree to accept the disputant’s late NOPA. The Commissioner did not accept the disputant’s late NOPA under s.89K of the [Act] (the only basis upon which he is entitled to accept a late NOPA). It is currently ineffective.

Grounds of appeal

[13] Ms Jacobs-Maxwell appeals against the Authority’s decision on four grounds. Mr Hayes, on her behalf, submitted that the Authority:

(a) wrongly preferred the evidence of the Commissioner’s witness, Ms Stuttard (as to what happened at the 27 November 2009 meeting) to that of Ms Jacobs and Mr Henson;

(b) erred in finding that the Commissioner had not agreed to ―accept‖ a

late NOPA at the meeting on 27 November 2009;

(c) erred in holding that the Commissioner had no power to accept a late

NOPA, in the absence of exceptional circumstances; and

(d) erred by holding that for a deemed acceptance of a NOPA to occur, the

NOPA had to be filed in time.

[14] The first two grounds of appeal merge. They involve evaluation of evidence given before the Authority about what occurred at the 27 November 2009 meeting. I deal with those two points together.

[15] The third and fourth grounds are linked points of law. The question of whether there was a ―deemed acceptance‖ of a late NOPA depends on whether the Commissioner had the power to accept a late NOPA, in the absence of proof of an exceptional circumstance.

[16] Of the six people who attended the 27 November 2009 meeting, only three gave evidence before the Authority. Ms Stuttard, a Team Leader in the National Collections Enforcement Team, was the sole representative of the Commissioner. Both Ms Cross and Ms Murphy were unavailable. Ms Jacobs-Maxwell and Mr Henson gave evidence. Ms Janson was not called. Ms Stuttard’s recollection of events was reconstructed from a contemporary file note made by Ms Cross.

[17] Mr Hayes took me through the relevant evidence. Three tax entities were discussed: Ms Jacobs-Maxwell personally, EAT Trust and Cool Cars Ltd.

[18] The substance of Ms Jacobs-Maxwell’s evidence on the alleged agreement is captured in a sparse brief of evidence, confirmed by her on oath at the hearing as her evidence in chief:

5. After some discussion about the details of the transactions and near the conclusion of the meeting Julie [Cross] had a private word with Alex [Stuttard] and Julie [Cross] then said we should pay the undisputed sums owed by me and dispute the rest. She said I should provide a Notice of Proposed Adjustment (“NOPA”) in respect of the

2001 year. Julie [Cross] said that this was how we could resolve the situation over the disputed amounts. The meeting had started by

acknowledging I was out of time to dispute the assessments. It

sounded reasonable to me. She used the words this was the only way to resolve the disputed issues. Ian [Henson] stated that we were many years outside the normal response period but he was told by Julie [Cross] that this was no problem as the IRD can accept NOPA’s out of time. She then said to Ian [Henson] I should have the NOPA in to IRD within a week being 3 December 2009.

6. Outside we congratulated Gina [Janson] on the breakthrough and believed that after many years of dispute we had made a breakthrough.

7. I asked Ian [Henson] to prepare the NOPA.

8. The next I heard was receiving a letter dated 4 December 2009 where the Commissioner rejected the NOPA on the grounds it was received outside the response period. ... The letter was written by Jason Williams whom I had never met.

(my emphasis)

[19] Mr Henson gave evidence supporting that of Ms Jacobs-Maxwell, in almost identical terms. He deposed:

4. After some discussion about the details of the transactions and near the conclusion of the meeting Julie [Cross] had a private word with Alex [Stuttard] and Julie [Cross] then said we should pay the undisputed sums owed by Heather [Jacobs-Maxwell] and dispute the rest. She said Heather [Jacobs-Maxwell] should provide a Notice of Proposed Adjustment (“NOPA”) in respect of the 2001 year. Julie [Cross] said that this was how we could resolve the situation over the disputed amounts. She used the words the only way to resolve the disputed issues. I appreciated the offer was significant because it was quite clear we were outside the response period and to have IRD agreement that we could file a NOPA helped Heather [Jacobs- Maxwell] in a considerable way. When I stated that we were many years outside the normal response period I was told by Julie [Cross] that this was no problem as the IRD can accept NOPA’s out of time. She then said I should have the NOPA in to IRD within a week being

3 December 2009.

5. The meeting concluded at 3.03pm.

6. Outside we congratulated Gina [Janson] on the breakthrough and believed that after many years of dispute we had made a breakthrough.

7. The NOPA was subsequently supplied to the [Commissioner] on 3

December 2009. I personally delivered it to the Hamilton offices of IRD. The officer at the front desk said he would ring Julie [Cross] to advise her the NOPA was here. He then told me she did not have to see me and the NOPA would be delivered to Julie [Cross].

8. The next relevant event was the letter dated 4 December 2009 where the Commissioner rejected the NOPA on the grounds it was received outside the response period. ...

(my emphasis)

[20] Ms Stuttard’s evidence was based largely on a file note prepared about 90

minutes after the meeting, by Ms Cross. In evidence in chief, she said:

11. On 27 November 2009, Julie Cross recorded minutes from that meeting on IR’s first system. Annexed and marked ―AS [2]‖ is a true copy of Julie Cross’ entry on IR’s first system.6

12. My recollection of the 27 November 2009 meeting is consistent with those recorded minutes.

13. At the meeting, [Ms Jacobs-Maxwell] claimed that IR had agreed to a reassessment in the 2001 tax year but that the reassessment was

6 The note is set out in full at para [21] below.

never actioned. Accordingly, [Ms Jacobs-Maxwell] requested that

IR reassess 2001 to reflect what she says were agreed adjustments.

14. It was explained that Julie Cross and I were part of the National Collections and Enforcement Team and that our role was to manage and enforce debt and not to consider reassessments or technical issues. Ashlea Murphy was a solicitor within Legal and Technical Services however, she had been asked to attend the meeting in order to provide us (the National Collections and Enforcement Team) with legal and technical support and not to consider technical issues relating to [Ms Jacobs-Maxwell’s] assessment.

15. [Ms Jacobs-Maxwell] was advised that the disputes process should be followed. In particular, a NOPA should be completed if she disputed the 2001 assessment. During the meeting, Julie Cross called Daryl Fabish (Acting Team Leader, Legal and Technical Services) to ask about the process of taxpayer initiated NOPAs. After talking to Darryl Fabish, Julie Cross advised the meeting attendees that “if it was accepted” (“it” being the NOPA) that IR would have 2 months to respond. There was further discussion around the need to include sufficient information in any NOPA so that additional information would not need to be requested. Timing was important because of [Ms Jacobs-Maxwell’s] bankruptcy proceedings.

16. I don’t recall any specific conversations around the circumstances in which a late NOPA would likely be accepted by IR. I am aware that late NOPAs can be accepted by IR in the event of ―exceptional circumstances‖.

17. There was no agreement that the Commissioner would accept a late

NOPA from [Ms Jacobs-Maxwell].

(my emphasis)

[21] Ms Cross’s memorandum was prepared on Inland Revenue’s computer

system. It stated:

Meeting held IRD Office Hamilton 2pm

Present from IR Julie Cross, Alix Stuttard and Ashlea Murphy present for TP [taxpayer] Heather Jacobs-Maxwell, Ian Henson and Gina Janson. Ian advised that they had information which showed that IR had agreed to reassessments in the 2001 tax year but that these were never actioned. [Their] request was that IR reassess the returns to reflect the reassessments. I advised that we were not able to consider reassessments and correct process needs to be followed so a NOPA should be completed. After discussions Gina and Ian agreed that a NOPA will be filed. Ian said that he will drop it into me by Tues afternoon. I advised that all current legal actions IR are involved in with Heather continue at this point. They accepted this. During the course I called Darrial Fabish LTS Acting T/L to ask about a TP initiated NOPA. He advised that if it was accepted IR would have 2 months to respond, I reiterated this back to the meeting members and

explained that I appreciate time is a factor in this instance but that I don’t want to commit a shorter time frame as it would be me doing the response and I appreciate the amount of information there is re this case. I told Ian that if he is doing the NOPA that he should include as much info as possible to reduce the need for requesting info from them. The meeting finished at

3pm approx.

(my emphasis)

[22] Both Mr Henson and Ms Jacobs-Maxwell have previously been convicted of offences of dishonesty. Those convictions were put to them in cross-examination as relevant to credibility. While Mr Hayes challenged that being done without prior notice to Ms Jacobs-Maxwell, it is clear that such matters were relevant to veracity and that it was appropriate for them to be put to the witnesses. In any event, nothing turns on the point. It appears, from Judge Barber’s comments during the cross- examination of Mr Henson that he placed no significant weight on the convictions. I proceed on that basis.

[23] Judge Barber prefaced his findings on what occurred at the meeting with some general observations on questions of credibility. He said:

[44] From almost 30 years experience as a District Court Judge in many jurisdictions, I am conscious that it is often difficult to know whether to believe a witness or to what extent to believe a witness. It is possible for a witness to become hazy and confused over time. Broadly, in assessing credibility, it is my practice to look at a witness’s evidence not only in its context but in the context of the total evidential fabric of the case. To some degree, I take into account a witness’s manner, demeanour, and general body language when giving evidence and being cross examined, but I am conscious of cultural factors and that demeanour and body language can be misleading, e.g. a witness may be affected by nervousness. There is neither any cultural nor nervousness factor arising in this case. A witness’s evidence is probably best tested against the known facts and for its inherent probability and consistency, and evidence needs to be related to sensible inferences.

[45] In terms of that general approach and my nearly 30 years experience at endeavouring to ascertain who is telling the truth, I have no reason to doubt the credibility of any witness for the Commissioner defendant in this case. I prefer the evidence of the Commissioner’s witnesses to that from the witnesses for the disputant who, I feel, have become confused in their recollection of events and, particularly, about the course of the discussions at the said meeting of 27 November 2009. In fact, I have real doubts about the credibility of the evidence of the disputant and [Mr Henson] in this case.

The final sentence of para [45] of the Authority’s decision appears to be something of a ―throw-away line‖, especially in light of observations made during the evidence about the limited value of the convictions as evidence suggesting lack of credibility on the part of Ms Jacobs-Maxwell and Mr Henson.

[24] Having made his general comments on questions of reliability and credibility, Judge Barber analysed the relevant evidence in relation to the alleged ―agreement‖ to accept the late NOPA.7 Judge Barber found as a fact that Ms Jacobs-Maxwell was not told that a late NOPA would be accepted by the Commissioner, granting an extension of time. In reaching that conclusion, the Judge accepted Ms Stuttard’s evidence (based on Ms Cross’ contemporaneous note) that the role of the National Collections and Enforcement Team was to manage and enforce debt, as opposed to considering reassessment or technical issues. Judge Barber found that advice was

given to Ms Jacobs-Maxwell that, if she wanted an adjustment made to the 2001 assessment, the disputes process would need to be followed. He found that she was told that a NOPA had to be prepared but that a late notice may not be accepted by the Commissioner.8

[25] This is an appeal by way of rehearing.9 The Supreme Court has made it clear that, subject to account being taken of the advantages of hearing and seeing witnesses, it is the appellate court’s role to determine for itself whether a finding of fact is correct.10 In my view, the conclusion reached by the Authority is supported by his analysis of the evidence. But, even putting to one side questions of credibility and reliability, it seems to me that the Authority’s conclusion is unassailable.

[26] I refer to the evidence in chief given by Ms Jacobs-Maxwell, Mr Henson and Ms Stuttard.11 Taken at its highest, the evidence of Ms Jacobs-Maxwell and Mr Henson goes no further than to indicate that the Commissioner acknowledged that Ms Jacobs-Maxwell could file a NOPA and that he had the power to accept such

_{notices out of time. Ms Jacobs-Maxwell and Mr Henson interpreted the words used}

7 _{Jacobs-Maxwell v Commissioner of Inland Revenue [2011] NZTRA Hamilton 04 at paras [72]-[81].}

8 _{Ibid, at paras [72]–[75].}

9 _{High Court Rules, r 20.18.}

10 _{Austin, Nichols & Co Inc v Stichting Lodestar [2007] NZSC 103, [2008] 2 NZLR 141 at para [13].}

11 See paras [18]–[21] above.

by the Commissioner as an agreement that the notice would be actioned as if it had been lodged in time. On the other hand, Ms Stuttard (supported by Ms Cross’ file note) was adamant that, while Ms Jacobs-Maxwell was at liberty to lodge a NOPA, the response period would only be triggered if, after lodgement, ―it was accepted‖.

[27] I consider that it is likely that both parties believed their position was correct. There was, however, no meeting of the minds, in the sense required to form an enforceable agreement or to give rise to some form of estoppel or waiver of rights. The appeal, so far as it is based on the Authority’s findings of fact, must fail.

The legal issues

(a) The statutory framework

[28] Part 4A of the Act is headed ―Disputes procedures‖ and is concerned with the procedures to be followed when adjustments to tax returns or assessments are sought. Section 89D of the Act allows taxpayers and others with standing to issue NOPAs. Importantly, s 89D(5) states:

89D Taxpayers and others with standing may issue notices of proposed adjustment

...

(5) For a notice of proposed adjustment issued under this section to have effect, the notice must be issued within the applicable response period.

[29] Similarly, s 89DA, which is concerned with taxpayers issuing NOPAs for taxpayer assessment, contains a similar provision:

89DA Taxpayer may issue notice of proposed adjustment for taxpayer assessment

...

(2) A notice of proposed adjustment under this section is not effective unless it is issued within the response period for the notice.

[30] The term ―response period‖ refers to the period within which a notice in response to another notice (the ―initiating notice‖) must be lodged. The applicable

response period for a NOPA to be lodged by a taxpayer is four months, where the initiating notice is a notice of assessment issued by the taxpayer, or a notice of disputable decision issued by the Commissioner.12 Where the initiating notice is a NOPA (in this case issued by the taxpayer), the response period is the two-month period starting on the date the NOPA was issued.13

[31] The Act however allows for responses made outside of the response period to

be accepted in ―exceptional circumstances‖. Section 89K provides:

89K Late actions deemed to occur within response period

(1) Where—

(a) The Commissioner considers that an exceptional circumstance has prevented a disputant from, within the applicable response period,—

...

(ii) Issuing a notice of proposed adjustment under section 89D or 89DA in respect of a disputable decision; or

...

(b) The disputant sends to the Commissioner—

...

(ii) A notice of proposed adjustment—

(A) In respect of a disputable decision ...

referred to in paragraph (a)(ii); and

(B) Specifying the matters required by section

89F; or,—

...

(d) The disputant’s notice of proposed adjustment; or

_...

12 Tax Administration Act 1994, s 3(1), definition of ―response period‖ at (c) and (d) (as at 1 April

2005 to 18 December 2007 and 19 December 2007 to 31 March 2008). As the relevant income tax returns were filed prior to 2005, however, the applicable response period might have been two months: see n 5 above. Nothing turns on this point for the purpose of this appeal and it is not necessary to take it further.

13 Tax Administration Act 1994, ss 3(1), definition of ―response period‖, and 89AB(2).

is to be treated for all purposes under this Part as if it had been given within the applicable response period.

...

(3) For the purposes of subsection (1),—

(a) An exceptional circumstance arises if—

(i) An event or circumstance beyond the control of a disputant provides the disputant with a reasonable justification for not rejecting a proposed adjustment, or for not issuing a notice of proposed adjustment or statement of position, within the response period for the notice:

(ii) A disputant is late in issuing a notice of proposed adjustment, notice of response or statement of position but the Commissioner considers that the lateness is minimal, or results from 1 or more statutory holidays falling in the response period:

(b) An act or omission of an agent of a disputant is not an exceptional circumstance unless—

(i) It was caused by an event or circumstance beyond the control of the agent that could not have been anticipated, and its effect could not have been avoided by compliance with accepted standards of business organisation and professional conduct; or

(ii) The agent is late in issuing a notice of proposed adjustment, notice of response or statement of position but the Commissioner considers that the lateness is minimal, or results from 1 or more statutory holidays falling in the response period.

[32] Ms Jacobs-Maxwell contends that because the Commissioner did not reject her proposed adjustment within the applicable response period of two months, the Commissioner is deemed to have accepted the adjustment. The ―deemed acceptance‖ provision is s 89H, which states:

89H Deemed acceptance

(1) If a disputant does not, within the response period for a notice of proposed adjustment issued by the Commissioner, reject an adjustment contained in the notice, the disputant is deemed to accept the proposed adjustment and section 89I applies.

(2) If the Commissioner does not, within the response period for a notice of proposed adjustment issued by a disputant, reject an adjustment

contained in the notice, the Commissioner is deemed to accept the proposed adjustment and section 89J applies.

(3) Where—

(a) A disputant does not, within the response period for replying to a notice from the Commissioner rejecting an adjustment proposed by the disputant, reject in writing all or part of the Commissioner’s notice, the disputant is deemed to accept the matters specified in the Commissioner’s notice; or

(b) The disputant accepts all or part of the Commissioner’s

notice in writing,—

then, in those circumstances,—

(c) Section 89I applies as if the matters contained in the Commissioner’s notice were an adjustment or adjustments proposed by the Commissioner; and

(d) The Commissioner’s notice is deemed, for the purposes of

section 89K, to be a notice of proposed adjustment.

[33] Part 8A of the Act was introduced at the same time as Part 4A14 and is entitled ―Challenges‖. It sets out the procedure for challenging ―disputable decisions‖. Once a ―disputable decision‖ is identified (through the operation of the Part 4A procedures), the ability to refer a challenge to a hearing authority is triggered.15 A ―disputable decision‖ is defined in s 3(1) of the Act as:

(a) An assessment:

(b) A decision of the Commissioner under a tax law, except for a decision—

(i) To decline to issue a binding ruling under Part 5A; or

(ii) That cannot be the subject of an objection under Part 8; or

(iii) That cannot be challenged under Part 8A; or:

(iv) that is left to the Commissioner’s discretion under sections

89K, 89L, 89M(8) and (10) and 89N(3).

[34] The legislation makes it clear that a decision to decline to receive a late

_{NOPA is not challengeable. Section 138E(1)(e)(iv) provides:}

14 _{Tax Administration Amendment Act (No 2) 1996, ss 11 and 42.}

15 The terms ―challenge‖, ―disputable decision‖ and ―hearing authority‖ are defined in s 3(1) of the

Act.

138E Certain rights of challenge not conferred

(1) This Part does not confer a right of challenge with respect to—

...

(e) A matter which by a provision in—

. . .

(iv) any of sections ... 89K, .... or

...

[35] The differences between the parties on the legal issues turn on the statutory pathway each has chosen to employ to demonstrate that the Commissioner did or did not respond adequately to the late NOPA. It is necessary to understand the competing positions before the statutory interpretation issues can be resolved.

(b) The competing positions

[36] Mr Hayes submitted that the late NOPA should be treated as an initiating document, for the purposes of Part 4A of the Act. He argues that whether a NOPA is valid is a question for the Authority, not the Commissioner. Mr Hayes contends that the Commissioner ought to have treated it as valid and issued a notice of response to the NOPA.

[37] On the other hand, Ms Deligiannis, for the Commissioner, argued that the Part 4A procedures do not apply to a late NOPA. She submitted that s 89K of the Act was a discrete code designed to deal with late notices and observed that there was no jurisdiction to challenge a decision not to accept a late NOPA.16

[38] If Mr Hayes were correct, the lodgement of the NOPA would trigger the

―response period‖ to which ss 3(1) and 89AB of the Act refer. That would give a period of two months for the Commissioner to respond to the NOPA. Failure to issue a notice of response within that time would result in a deemed acceptance of

_{the proposed adjustment.}17

16 _{Tax Administration Act 1994, s 138E(1)(e)(iv).}

17 Ibid, s 89H(2).

[39] If Ms Deligiannis were right, there was no need for a notice of response. Rather, the Commissioner could reject the notice, as a discretionary decision, for lack of proof of an ―exceptional circumstance‖.18

(c) The Authority’s decision and reasoning

[40] The Authority held that lodgement of a timely NOPA was a prerequisite to deemed acceptance of the adjustment sought. There was no dispute about the late filing of the notice. As the Authority said, it had been provided ―years outside of the applicable response period‖.19 Ms Jacobs-Maxwell was required to notify the Commissioner that she rejected the assessments within the applicable response period by issuing a NOPA.20 Judge Barber observed that under s 89D(5) of the Act, a NOPA only has effect if it is issued within the applicable response period.

[41] Judge Barber accepted that the Commissioner acted correctly in rejecting a NOPA made outside of the required response period. In doing so, he rejected Mr Hayes’s submission that s 89H of the Act (the ―deemed acceptance‖ provision) did not differentiate between a timely or late NOPA.

[42] Mr Hayes had submitted to the Authority that the Commissioner’s failure to provide a notice of response within two months resulted in a ―deemed acceptance‖ of the proposed adjustment. Judge Barber disagreed, saying:

[49] ... The Commissioner submits that the disputant’s argument that a valid timely NOPA is not a prerequisite to deemed acceptance under s 89H(2) of the [Act] is untenable. I agree. For a NOPA issued under s 89D of the [Act] to have effect, the NOPA must be issued within the applicable response period. It is elementary that a NOPA be issued validly before it can have any effect. It must be issued within the response period or within a formal extension period.

[43] The Authority accepted the Commissioner’s view that s 89K governed the situation. He held that if an ―exceptional circumstance‖ was not established then the

_{adjustment could be rejected.}21

18 _{Ibid, s 89K(1).}

19 _{Jacobs-Maxwell v Commissioner of Inland Revenue [2011] NZTRA Hamilton 04 at para [46].}

20 _{Tax Administration Act 1994, s 89D(1).}

21 Jacobs-Maxwell v Commissioner of Inland Revenue, at para [52].

[44] Mr Hayes placed reliance on Commissioner of Inland Revenue v Alam,22 where the Court of Appeal held that a disputant wishing to challenge the Commissioner’s view that a notice of response is non-compliant should use the challenge procedures in Part 8A instead of judicial review. Mr Hayes submitted that the Part 4A procedure needed to be followed so the dispute could be determined by the Authority. In response to that submission, Judge Barber said:

[61] The disputant relies on Alam’s case as authority for the proposition:

―the proper course was not for the Commissioner to decide the validity of the document, but that the matter should be put before the Taxation Review

Authority‖. However, the Court of Appeal in Alam’s case agreed with the

Commissioner’s submission that the High Court had asked itself the wrong question when it considered whether or not the Commissioner had the power to reject a taxpayer’s NOR [notice of response]. Rather, the reassessments remained valid and the real question was how, under the legislative scheme, a taxpayer could challenge the Commissioner’s conclusion.

[62] The applicable response period is statutorily imposed and therefore is to be distinguished from Alam’s case where the validity of the form of the NOR was in dispute. The disputant accepts that her NOPA was issued outside of the applicable response period. Accordingly, there is no issue about compliance which requires the exercise of an opinion or discretion by this Authority.

[63] I agree with Ms Herbert that the disputant’s invalid late NOPA is not deemed accepted where the Commissioner fails to issue a compliant NOR within the applicable response period. Rather, the Commissioner takes a risk that if the disputant’s NOPA is found to be timely and valid, then the NOPA could be deemed accepted.

...

[66] I also agree with Ms Herbert that an invalid NOR is tantamount to the absence of a NOR. Therefore, the Court of Appeal’s decision that the Authority can consider preliminary issues relating to challenges is relevant in circumstances where there is a challenge on the basis that the taxpayer has issued a valid NOPA but the Commissioner has failed to respond with a valid NOR.

(d) Which approach is right?

[45] In my judgment, the approach for which Ms Deligiannis contended is correct. I agree with Judge Barber that the dispute resolution provisions of Part 4A of the Act are not intended to deal with the situation in which a taxpayer lodges a late NOPA.

_{The definition of ―disputable decision‖ expressly excludes a decision that is left to}

22 Commissioner of Inland Revenue v Alam [2009] NZCA 273, (2009) 24 NZTC 23,564.

the Commissioner’s discretion under s 89K — that is, the discretion whether to accept a late NOPA.23 It also excludes decisions of the Commissioner that cannot be challenged under Part 8A of the Act.24 The Commissioner’s exercise of discretion under s 89K cannot be challenged under that Part.25

[46] The policy underlying Part 4A is to identify clearly, after full and frank exchanges of information, those aspects of ―disputable decisions‖ made by the Commissioner that are challenged.26 In Commissioner of Inland Revenue v Alam,27 the Court of Appeal said of the Part 4A procedures:

[20] Two features of this procedure should be emphasised at this point:

(a) It requires openness from both sides, in the sense that each side is required to advise the other of its position and of the reasons for it.

(b) There are strict timeframes within which particular steps are to be taken, although there is provision for extensions in exceptional cases.

[47] There would be little scope for finality if a taxpayer were entitled to use the NOPA procedure constantly, in an endeavour to reopen assessments that have previously gone unchallenged. The need for finality is reflected in s 89K(1), which makes it clear that a NOPA from a taxpayer may only be accepted late if ―an exceptional circumstance‖ has been established.28 An ―exceptional circumstance‖ is

strictly defined.29 A decision to decline to receive a late NOPA is not

challengeable.30

[48] It is only if the Commissioner considers that there has been an exceptional circumstance preventing a disputant from providing a NOPA within the applicable response period and the disputant sends a late NOPA, that under s 89K(1)(d), the latter is ―treated for all purposes under this Part as if it had been given within the

_{applicable response period‖.}

23 _{Tax Administration Act 1994, s 3(1), definition of ―disputable decision‖ at (b)(iv).}

24 _{Ibid, s 3(1), definition of ―disputable decision‖ at (b)(iii).}

25 _{Ibid, s 138E(1)(e)(iv).}

26 _{See ibid, s 89A, which sets out the purpose of Part 4A.}

27 _{Commissioner of Inland Revenue v Alam [2009] NZCA 273, (2009) 24 NZTC 23,564 at [20].}

28 _{Tax Administration Act 1994, s 89K(1)(a).}

29 _{Ibid, s 89K(3), set out at para [31] above.}

30 Ibid, ss 3(1), definition of ―disputable decision‖ at (b)(iv), and 138E(1)(e)(iv).

[49] The usual dispute resolution procedures in respect of taxpayer NOPAs have no effect, unless the Commissioner is satisfied of an ―exceptional circumstance‖ under s 89K. This is reinforced by s 89D(5), which provides that for a NOPA to have effect, it must be issued within the applicable response period. No question of

―deemed acceptance‖ arises if the ordinary dispute resolution procedures set out in Part 4A are not applicable. In my view, Judge Barber’s decision, on the legal issue, was plainly correct.

Result

[50] The appeal is dismissed.

[51] Costs are awarded in favour of the Commissioner on a 2B basis, together with disbursements, both to be fixed by the Registrar. I do not certify for second counsel.

_{[52] I thank counsel for their assistance.}

_{P R Heath J}

Delivered at 9.30am on 25 October 2011