Peebles v Attorney-General [2014] NZHC 2635 (24 October 2014)

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IN THE MATTER	of the Judicature Amendment Act 1972
BETWEEN	GREGORY ALAN PEEBLES and CLIVE RICHARD BRADBURY First Applicants BEN NEVIS FORESTRY VENTURES LIMITED and BRISTOL FORESTRY VENTURE LIMITED Second Applicants
AND	ATTORNEY-GENERAL First Respondent COMMISSIONER OF INLAND REVENUE _{Second Respondent}

Hearing:	12 and 13 June 2014
Appearances:	G J Judd QC for Applicants R L Roff and S J Leslie for Second Respondent
_Judgment:	_{24 October 2014}

This judgment was delivered by Justice Peters on 24 October 2014 at 4.30 pm pursuant to r 11.5 of the High Court Rules

[1] The Plaintiffs seek judicial review of a decision made by the Respondent (“Commissioner”) to issue and/or continue proceedings against Mr Peebles and Mr Bradbury, the First Plaintiffs, to recover unpaid tax (“recovery proceedings”).

[2] The Second Plaintiffs (“Ben Nevis” and “Bristol” respectively, and together “the LAQCs”) are Loss Attributing Qualifying Companies. Mr Peebles holds the shares in Ben Nevis and Mr Bradbury the shares in Bristol.

[3] The Commissioner issued the recovery proceedings in December 2013. Their purpose is to obtain judgment, in fact summary judgment, for sums which the Commissioner contends Mr Peebles and Mr Bradbury owe in respect of the 1997 and

1998 income tax years. Mr Peebles and Mr Bradbury are defending the proceedings and opposing the application for summary judgment.

Commissioner. The first was that the Commissioner reassess their liability for the

1997 and 1998 years under the accruals rules in subpart EH Income Tax Act 1994 (“accruals rules” and “ITA 1994” respectively), and issue fresh assessments in respect of the same. The second was that the Commissioner discontinue the recovery proceedings until liability had been so reassessed.

[5] On 26 May 2014 the Commissioner decided, and advised the Plaintiffs, that she would not amend the assessments and she would not discontinue the recovery proceedings. The Plaintiffs had already commenced this application for review in anticipation of a forthcoming hearing of the Commissioner’s application for summary judgment but on receipt of the Commissioner’s response they amended their statement of claim and the hearing followed shortly thereafter.

[6] Although in their statement of claim the Plaintiffs seek review of both the refusal to reassess and the refusal to discontinue,¹at the hearing they narrowed their

case to seek review only of the refusal to discontinue.²This refusal is referred to below as the “collections decision”.

[7] The essence of the Plaintiffs’ case as regards the collections decision is that the Commissioner has a duty not to seek to recover more tax than is properly payable and that the Commissioner failed to have regard to that duty, and so made an error of law, when she made the collections decision.

[8] The Commissioner opposes the application on several grounds. The first is that her decision to pursue or continue proceedings to recover tax is not amenable to review. Secondly, and alternatively, the Commissioner submits that she is not subject to any duty to the Plaintiffs in the nature alleged. Thirdly, and again alternatively, the Commissioner contends that even if a ground of review were made out, the Court ought to decline relief on the ground that this application is another attempt by the Plaintiffs to avoid or delay meeting their obligations.

[9] I record that after the hearing I received further submissions from the parties concerning judgments of the Court of Appeal delivered in August 2014. These were Accent Management Limited v Attorney-General, Ben Nevis Forestry Ventures Limited v Commissioner of Inland Revenue and Redcliffe Forestry Venture Limited v

required to consider the third submission made by the Commissioner, to which I have referred to in [8] above. It is not, however, necessary for me to consider that third submission, given the decision I have reached.

[10] With others, the Plaintiffs were investors in a forestry venture in the South Island. This scheme has been referred to in other judgments as “Trinity” or the “Trinity scheme” and I shall do likewise. In their returns for the 1997 and 1998

_{income years investors claimed deductions on account of two expenses
– one being a}

²_{Submissions in Support of Application for Judicial Review
dated 9 June 2014, at [4].}

³Accent Management Limited v Attorney-General [2014] NZCA 351, (2014) 26 NZTC 21-087; Ben Nevis Forestry Ventures Limited v Commissioner of Inland Revenue [2014] NZCA 350, (2014) 26 NZTC 21-086; and Redcliffe Forestry Venture Limited v Commissioner of Inland Revenue [2014] NZCA 349, (2014) NZCLC 98-023, (2014) 26 NZTC 21-085.

premium paid for a licence of land (1997 and 1998) and the other a premium for insurance cover (1997 only).

[11] The Commissioner did not agree that investors were entitled to the deductions claimed and issued Notices of Proposed Adjustment (“NOPAs”) pursuant to Part 4A Tax Administration Act 1994 (“TAA”), as well as assessments of investors’ tax liabilities. The Commissioner’s assessments in respect of each of the Plaintiffs were issued in 2002 for 1997 and in 2003 for 1998.

[12] The investors (or some of them, including the Plaintiffs) disputed the proposed adjustments and assessments and, in due course, invoked the challenge procedures in Part 8A TAA.

[13] The challenges were unsuccessful in the High Court, and on appeal to the Court of Appeal and Supreme Court (“challenge proceedings”).⁴The Court confirmed the Commissioner’s assessments in each instance. The Supreme Court held that, although the deductions that had been claimed fell within the terms of the relevant provisions of the legislation, they were part of a tax avoidance arrangement and consequently void against the Commissioner.⁵

[14] The Supreme Court issued its judgment in December 2008.⁶In the intervening period, neither Mr Peebles nor Mr Bradbury has paid the amount for which they were assessed or any additional amount that has accrued.

[15] By letters dated 6 December 2012, the Commissioner made demand for the sum she considered owing from each of Mr Peebles and Mr Bradbury. The Plaintiffs submit that the Commissioner acknowledges in these letters that she has the duty that the Plaintiffs allege. The Commissioner denies any such acknowledgment and I

⁴Accent Management Limited v Commissioner of Inland Revenue [2006] NZHC 59; (2006) 22 NZTC 19,758 (HC);

Accent Management Limited v Commissioner of Inland Revenue [2007] NZCA 230, (2007) 23

NZTC 21,323; and Ben Nevis Forestry Ventures Ltd v Commissioner of Inland Revenue [2008] NZSC 115, [2009] 2 NZLR 289, (2009) 24 NZTC 23,188.

⁶Ben Nevis Forestry Ventures Ltd v Commissioner of Inland Revenue, above n 4.

[17] The Commissioner seeks judgment against Mr Peebles for $6,056,192.17. This comprises the liabilities for which the Commissioner assessed Mr Peebles in

2002 and 2003 and additional tax and interest which the Commissioner alleges has accrued. It also takes into account some deductions the Commissioner is willing to allow for the 1998 year and an overstated tax shortfall.

[18] On the face of Mr Peebles’ statement of defence, an issue may arise as to whether he received the assessment said to have been rendered in respect of 1997. I am not required to resolve that matter for the purposes of determining this application.

[19] The Commissioner seeks judgment against Mr Bradbury for $1,342,976.99. This likewise comprises the liabilities for which the Commissioner assessed Mr Bradbury in 2002 and 2003, an “under estimation” penalty imposed pursuant to s 140A TAA and interest, again less similar deductions allowed to Mr Peebles.

[20] Between February and May 2014 Wynyard Wood, acting for the Plaintiffs, wrote to Crown Law regarding the recovery proceedings.⁸

(a) The recovery proceedings would be defended on the grounds that the assessments were not, in fact, assessments for the purposes of the TAA. This was said to be because the Commissioner knew that the ITA 1994 required calculation of Mr Peebles’ and Mr Bradbury’s liabilities by reference to the accruals rules, but had made a deliberate

⁷Commissioner of Inland Revenue v Peebles CIV-2013-404-5133; and Commissioner of Inland

⁸Letter Wynyard Wood to Crown Law dated 12 February 2012, at 145 of Plaintiffs’ Casebook.

(b) The Commissioner would need to prove that the tax claimed was payable, which the recovery proceedings did not attempt to do.

(c) At the time of assessing the Plaintiffs’ liabilities, the Commissioner had known the accruals rules had “primacy” and the Court of Appeal’s recently issued judgment in Sovereign Assurance Company Ltd v Commissioner of Inland Revenue had confirmed this primacy.⁹

(d) The Commissioner was required to determine the amounts payable for collection purposes by reference to the accruals rules.

(e) The Plaintiffs sought confirmation that the Commissioner would withdraw the recovery proceedings, pending recalculation of their liability under the accruals rules.

(b) she would not withdraw the recovery proceedings or seek judgment for a lesser amount.

[23] The reasons for both decisions were set out in lengthy memoranda enclosed with the Commissioner’s letters. Because the Plaintiffs’ case depends on the existence of the alleged duty not to collect more tax than is properly payable, it is not necessary for me to examine the reasons the Commissioner gave for her decisions in any detail. The following is a brief summary of the reasons the Commissioner gave in respect of the collections decision.

[24] First, the Commissioner referred to her duty to protect the integrity of the tax system.¹⁰The Commissioner’s view was that to discontinue the proceedings or seek

[25] Secondly, the Commissioner referred to the finding of the Supreme Court (and that of the High Court and Court of Appeal) that the scheme was void against the Commissioner as a tax avoidance arrangement. The Commissioner’s view was that, to apply the accruals rules, would in effect be to hold that the Supreme Court judgment was incorrect and to act inconsistently with that judgment. Moreover, it would be inconsistent with the Commissioner’s long held stance that the scheme was indeed a tax avoidance arrangement.

[26] Lastly, the Commissioner referred to the fact that that sums for which she was seeking judgment had been outstanding for a lengthy period, that Mr Peebles and Mr Bradbury had refused to pay the sums for which they had been assessed, and that it was necessary to continue to pursue recovery to reinforce in taxpayers generally the need to comply with their obligations.

[27] The Plaintiffs’ suggestion that their liabilities fell to be determined under the accruals rules was not a new one. However, in their letters to the Commissioner from February 2014 onwards, and in submission, the Plaintiffs placed considerable weight on the Court of Appeal’s decision in Sovereign. I refer to that decision below but it is first necessary to say more regarding the contentions as to the accruals rules. Counsel for the Plaintiffs referred me to an affidavit sworn by Tracey Lloyd for the Commissioner in February 2009, which summarises the Commissioner’s approach to

[28] One matter to be addressed in those procedures was the calculation of income and expenditure in respect of the licence of land to which I have referred. One possibility was that the accruals rules applied. Another was that different rules, in subpart EG ITA 1994, applied. The investors relied on this subpart, as it gave them the most financially advantageous outcome. Another possibility was that the licence was part of a tax avoidance arrangement and void against the Commissioner

¹¹Affidavit of G A Peebles sworn 18 February 2014, Exhibit B: Affidavit of T Lloyd sworn

[29] The Commissioner’s position was that the licence was part of a tax avoidance arrangement, and so whether subpart EG or EH would otherwise apply was of academic interest only, although views within the Inland Revenue Department were divided as to whether subpart EG or EH would provide the correct “black letter” analysis.

[30] Ms Lloyd goes on to say that, given the various possibilities,¹²the Commissioner’s NOPA in respect of the 1997 year proposed alternative assessments, including one made on the basis that the accruals rules applied. The position changed, however, on receipt of the investors’ Notice of Response (“NOR”) which contended for subpart EG, and which disputed the application of the accruals rules and placed no reliance on them.

[31] Given that stance by the investors, Ms Lloyd says from then on, including in its NOPA for the 1998 year, the Commissioner focused on EG and the anti-avoidance provisions.

[32] With one exception, the investors maintained their position in the High Court, Court of Appeal and Supreme Court. The exception was Accent Management Limited which sought to argue in the Supreme Court that the licence was a financial arrangement within the ambit of the accruals rules and fell to be considered as such. The Supreme Court held that Accent could not advance this argument. This was because the Supreme Court had not given leave to appeal on that ground and because Accent had not raised the argument in the Part 4A disputes procedures.

[150] ... Accent Management wished to argue that the agreement to grant the licence and options was an agreement for sale and purchase of property and fell within para (b) of the definition of financial arrangement in s EZ 45 of the Income Tax Act 2004. ... This represented an attempt to have deduction and spreading issues determined in accordance with Subpart EZ of the 2004 Act, or Subpart EH of the 1994 Act as it then was.

[151] We declined to accept this line of argument as it had not been raised at any earlier stage of the proceeding. It cannot be said that the grounds upon

¹³Ben Nevis Forestry Ventures Ltd v Commissioner of Inland Revenue, above n 4.

which leave was granted to appeal to this Court contemplated or authorised the argument. ... it would not be appropriate to give leave at the hearing in the face of the Commissioner’s understandable opposition. The more is this so because the proposed new point was contradictory of the stance previously taken by Accent Management and inconsistent with the claimed deductions, the Commissioner’s objections to which are being challenged in these proceedings.

[152] There was a further reason for the ruling we gave, based on the way in which taxation disputes and litigation are designed to be handled. There are two aspects of the procedures laid down for the resolution of taxation disputes in Part 4A of the Tax Administration Act 1994 which are significant for present purposes. First, firm time limits are imposed for raising and responding to disputes and second, the grounds upon which each side takes its position must be specified with some precision. ...

[153] ... Those issuing NOPAs, NORs and SOPs are generally limited by their terms as regards what may be argued at any later stage of the dispute or challenge process. ... the disputes process is not a general inquiry into the taxpayer’s liability to pay tax and the amount of that liability. It is an inquiry focused on and by the terms upon which the dispute is raised and responded to. That approach has been reinforced by the terms of Part 4A.

[155] ... in the present case the taxpayer sought to introduce an entirely separate and distinct basis for assessing the tax payable and sought to do so for the very first time on second appeal. It would be quite contrary to the scheme and purpose of Part 4A to allow this to be done. ...

[34] Since the Supreme Court judgment, investors, including the Plaintiffs, have attempted to have their liabilities determined by reference to the accruals rules, and on each occasion they have been unsuccessful.¹⁴

[35] As I have said, in the present case the Plaintiffs placed considerable weight on the Court of Appeal’s decision in Sovereign. The gist of the submission was that Sovereign held that it was mandatory to apply the accruals rules in subpart EH if calculating gross income or expenditure in an income year in respect of a financial

¹⁴See, for instance, Accent Management Ltd v Commissioner of Inland Revenue (2010) 24 NZTC

24,126 (HC); and Accent Management Ltd v Attorney-General [2013] NZHC 1447, (2013) 26

[36] The judgment in Sovereign is not material to the view I take of the issues that arise in this case. I mention it, however, given the significance the Plaintiffs’ attach to the judgment.

[37] It is correct, and I do not understand there to be any dispute, that Sovereign confirmed that it was mandatory to apply the accruals rules to a financial arrangement covered by those rules. That arises from s EH 10(1):¹⁵

(1) Notwithstanding any other provision in this Act, gross income or expenditure in an income year in respect of a financial arrangement under the qualified accruals rules shall be calculated under those rules.

[38] The Plaintiffs’ argument is that arrangements in respect of the licence constitute a “financial arrangement” within the relevant definition and therefore it was, and remains, mandatory for the Commissioner to determine their liability by reference to the accruals rules.

[39] The Commissioner’s immediate response is that the licence may or may not be a financial arrangement as defined within the accruals rules but, regardless, the arrangement in this case was void for tax avoidance and so the rules are immaterial.

[40] Counsel for the Commissioner referred me to Alesco New Zealand Limited v Commissioner of Inland Revenue as authority for that proposition.¹⁶Alesco was concerned with a structure which complied with the accruals rules. The Commissioner succeeded in its argument that the arrangement was void as a tax avoidance arrangement, and so susceptible to the Commissioner’s reconstruction powers.¹⁷

[41] The Plaintiffs submit in reply that it is impossible to know whether the arrangement in this case is a tax avoidance arrangement without first applying the

¹⁵_{Sovereign Assurance Company Ltd v Commissioner of
Inland Revenue, above n 9, at [54].}

¹⁶Alesco New Zealand Limited v Commissioner of Inland Revenue [2013] NZCA 40, [2013] 2

accruals rules. Counsel for the Plaintiffs also provided me with a copy of the 1987

Report of the Consultative Committee on Accrual Tax Treatment of Income and Expenditure. With respect to counsel, I did not find this report of assistance. I have recorded the parties’ positions on the relevance or otherwise of Sovereign but, as I say, ultimately it is not material to the conclusion I have reached.

[42] Turning now to the statement of claim, the Plaintiffs’ case as it relates to the collections decision is pleaded as follows:¹⁸

38. The Commissioner has a duty not to collect more tax (which includes shortfall penalties) than is properly payable, even if there are assessments for higher amounts. She has acknowledged that duty.

39. She therefore has a duty, at least after the question has been raised with her, to apply the ITA to ascertain the correct position, notwithstanding any prior assessments.

40. The ITA unequivocally states that where there is a financial arrangement the accruals rules must be applied to ascertain income and expenditure in a tax year. The Court of Appeal’s 17 December

2013 Sovereign decision confirmed that everything else in the ITA is subordinated to the accruals rules in respect of financial

41. It follows that in considering how much she may properly seek to collect the Commissioner must apply the accruals rules to the financial arrangement.

42. All of the matters raised in the Commissioner's collections memo decision (incorporating the assessments decision) are irrelevant to the collections decision because her duty applies whether or not there have been previous assessments.

43. The only relevant consideration is whether there was a financial arrangement for, if there was a financial arrangement the necessity to apply the accruals rules follows inevitably.

45. It follows with further inevitability from the necessity to apply the accruals rules combined with the Commissioner’s acknowledged duty, that the collections decision is invalid on the basis of error of law, the taking into account of irrelevant considerations and the failure to take into account relevant considerations.

[43] The grounds on which the Commissioner opposes the application are listed in

Decision to commence and/or continue with recovery proceedings not amenable to judicial review

[45] The Commissioner’s first submission is that a decision to commence and/or continue with proceedings to recover unpaid tax is not amenable to judicial review. The Commissioner submits that the Court should not review a decision as to the conduct of litigation, made by the Commissioner in discharging her duties in the care and management of taxes.

[46] Counsel referred me to several authorities in support of her submission. With respect to her, I do not consider those authorities would preclude review for error of law, being the ground of review relied upon in this case. Accordingly, the Commissioner’s submission is not determinative of the present case.

[47] The Commissioner’s care and management obligations are contained in ss 6 and 6A TAA. Section 6 imposes a duty on the Commissioner to use best endeavours to protect the integrity of the tax system, which in turn includes the matters set out in s 6(2). Section 6A charges the Commissioner with the care and management of taxes covered by the Inland Revenue Acts, as they are in this case. Section 6A(3) is concerned particularly with the Commissioner’s duties as regarding collection of tax committed to her charge.

6 Responsibility on Ministers and officials to protect integrity of tax system

(1) Every Minister and every officer of any government agency having responsibilities under this Act or any other Act in relation to the collection of taxes and other functions under the Inland Revenue Acts are at all times to use their best endeavours to protect the integrity of the tax system.

(b) The rights of taxpayers to have their liability determined fairly, impartially, and according to law; and

(c) The rights of taxpayers to have their individual affairs kept confidential and treated with no greater or lesser favour than the tax affairs of other taxpayers; and

(e) The responsibilities of those administering the law to maintain the confidentiality of the affairs of taxpayers; and

(f) The responsibilities of those administering the law to do so fairly, impartially, and according to law.

(2) The Commissioner is charged with the care and management of the taxes covered by the Inland Revenue Acts and with such other functions as may be conferred on the Commissioner.

(3) In collecting the taxes committed to the Commissioner's charge, and notwithstanding anything in the Inland Revenue Acts, it is the duty of the Commissioner to collect over time the highest net revenue that is practicable within the law having regard to—

(b) The importance of promoting compliance, especially voluntary compliance, by all taxpayers with the Inland Revenue Acts; and

[49] Counsel placed particular reliance on Raynel v Commissioner of Inland Revenue in support of her submission that a decision made by the Commissioner in the exercise of her care and management duties is not amenable to review.¹⁹In Raynel, a taxpayer sought judicial review of an application by the Commissioner to have him declared bankrupt. In declining the application for review, Randerson J

[73] Finally, I wish to say a word about the availability of judicial review in cases such as this. Given the broad managerial responsibilities given to the Commissioner and officials of the Inland Revenue Department, this court will be slow to interfere with the proper exercise of their statutory duties and discretions in relation to the recovery of outstanding taxation revenue. Decisions in this field essentially involve the exercise of judgment within the statutory framework and this court will not lightly interfere with decisions of that kind.

[74] It is important to emphasise the proper function of judicial review. It is to ensure, in a broad sense, that statutory powers and duties are exercised in accordance with law. In the present context, the grounds for review will generally be very limited. If the decision-maker has called to attention all mandatory considerations and has not made any material errors of law, then this court will be unlikely to intervene unless the decision can be shown to be such that no reasonable decision-maker could have made it. It must be emphasised that this court does not, on judicial review, simply substitute its own view for that of the decision-maker and proper weight will be given to the experience, knowledge, and judgment of the departmental officer or officers concerned.

Revenue v Chesterfields Preschool Ltd (No 2), in which the Court of Appeal said:²⁰

[152] We comment further that, absent the first judicial review judgment, we would have accepted the Commissioner’s submission that a refusal to exercise powers under ss 6 or 6A of the TAA would not normally be a prime candidate for review proceedings. ...

[51] It is clear that in Raynel, Randerson J left open the possibility that the Court might intervene in a decision if satisfied the Commissioner had made a material error of law. Accordingly, in my view it is necessary to go on and consider whether or not the duty alleged by the Plaintiffs exists.

[52] The next issue is whether the Commissioner has a duty not to seek to collect more tax than is properly payable, even if there are assessments for greater amounts. The Plaintiffs put it this way in their submissions:²¹

²¹Submissions in Support of Application for Judicial Review dated 9 June 2014, at [6].

purposes to recalculate the amounts payable to ensure that she is not seeking to recover more than is actually payable. The Commissioner has acknowledged having this duty.

[53] The Plaintiffs submit that the “collections phase is a new phase within which the Commissioner is required to review the position”.²²They also submit that the duty they allege does not conflict with what they refer to as the “qualified inviolability of the assessments” because “the assessments are one step in a process leading to recovery of unpaid taxes”.²³The Plaintiffs submit that the duty imposed on the Commissioner by s 6 TAA, that is to protect the integrity of the tax system, is violated by collection of more tax than the law permits.²⁴

[54] The Commissioner’s response to this submission is that she is not subject to a duty to recalculate the amount of tax that she is seeking to collect and, in any event, she is seeking to collect the correct amount. The basis for both of these submissions is the Supreme Court judgment confirming the correctness of the Commissioner’s assessments.²⁵

[55] I accept the Commissioner’s submission that she was not subject to a duty to recalculate the amount of tax before making the collections decision. In my view, the Commissioner is entitled to seek to collect the amount for which Mr Peebles and Mr Bradbury were assessed. My reasons are as follows.

[56] A challenge to an assessment is determined under Part 8A TAA. The assessment is required to reflect the outcome of any such challenge.

(a) Confirm or cancel or vary an assessment, or reduce the amount of an assessment, or increase the amount of an assessment to the extent to which the Commissioner was able to make an assessment of an increased amount at the

²⁵Synopsis of Commissioner’s Submissions dated 11 June 2014, at [38] and [39].

(b) Make an assessment which the Commissioner was able to make at the time the Commissioner made the assessment to which the challenge relates, or direct the Commissioner to make such an assessment.

(1B) If a taxpayer brings a challenge and proves, on the balance of probabilities, that the amount of an assessment is excessive by a specific amount, a hearing authority must reduce the taxpayer's assessment by the specific amount.

(3) Subject to subsection (4), the Commissioner must make or amend an assessment or other disputable decision in such a way that it conforms to the hearing authority's determination.

(4) The Commissioner is not required to make or amend an assessment or other disputable decision before the resolution of appeal procedures from the hearing authority.

[58] The effect of the Supreme Court’s judgment in this case was to confirm the Commissioner’s assessments and to fix Mr Peebles’ and Mr Bradbury’s liabilities for the relevant income tax years.

[19] ... In the end the correctness or otherwise of the assessments affecting the appellants depends on judgments made by the courts and not the opinion of the Commissioner. The correctness of the assessments against the appellants was upheld by Venning J and, in the judgment which we are delivering simultaneously, we dismiss the appeal against that judgment. ...

[60] The sums assessed are due, and have been since the Supreme Court delivered its judgment. That is apparent from Redcliffe Forestry Venture Ltd v Commissioner of Inland Revenue,²⁷in which the Court of Appeal determined three appeals, including one brought by Ben Nevis and Bristol against the Commissioner. The

_{appeals concerned statutory demands served by the Commissioner for
amounts the}

²⁶Accent Management Ltd v Commissioner of Inland Revenue (No 2), [2007] NZCA 231, (2007)

²⁷Redcliffe Forestry Venture Ltd v Commissioner of Inland Revenue above n 3.

Commissioner considered owing by the LAQCs for the 1998 income tax year. The LAQCs applied to have the demands set aside. They failed in the High Court and appealed to the Court of Appeal. The significance of the judgment for present purposes is that the Court of Appeal determined that the sums for which Ben Nevis and Bristol were assessed were due and had been due on completion of the challenge

[62] It is only if a taxpayer does not comply with this obligation, as in the present case, that the Commissioner must consider the steps that she is required to take having regard to the duties imposed on her by ss 6 and 6A TAA.

[63] Section 6A(3) TAA imposes a duty on the Commissioner to collect the “highest net revenue practicable within the law” having regard to the matters in s 6A(a) to (c) inclusive. In the Redcliffe appeal to which I have referred above, the Court of Appeal said:²⁹

[55] ... It is notable s 6A not only charges the Commissioner with the care and management of taxes covered by the Inland Revenue Acts but also describes the Commissioner’s duty as “collecting over time the highest net revenue”.

(1) The Commissioner must maximise the recovery of outstanding tax from a taxpayer.

(2) Despite subsection (1), the Commissioner may not recover outstanding tax to the extent that—

(b) recovery would place a taxpayer, being a natural person, in serious hardship.

(3) Despite subsection (2)(b), the Commissioner may take steps preparatory to, or necessary to, bankrupt the taxpayer, including debt proceedings in the District Court or the High Court.

[65] The combined effect of the matters to which I have referred from [56] onwards is that the sum due from a taxpayer is fixed on the outcome of the challenge procedure. The taxpayer is obliged to pay on completion of the challenge procedure and if the taxpayer does not pay the Commissioner is obliged to collect, unless it is impracticable to do so. I do not consider there is any intervening duty to reconsider the amount of the taxpayer’s liability if that taxpayer defaults in their obligation to pay and proceedings to collect are required.

[66] Counsel for Mr Peebles and Mr Bradbury submitted that the effect of the words “within the law” in s 6A(3) TAA is to impose the duty for which Mr Peebles and Mr Bradbury contend. I do not accept that construction. I consider those words qualify “practicable”. Regardless, I do not consider those words impose an obligation to reconsider.

(a) a “reduced LAQC loss attribution” not reflected in the 1998 assessments. This was said to flow from an agreement by the Commissioner to treat particular deductions as if these had been allowed then in the assessment of the LAQCs for the 1998 year.

(b) an overstatement of the tax shortfall adopted for the purpose of determining the abusive tax position shortfall penalty, this having been overstated because of an error as regards the rates of tax applicable to Mr Peebles and Mr Bradbury in the 1998 income year.

12.0 Mr Peebles’ assessments cannot be adjusted by the Commissioner as they have been confirmed by the Supreme Court. However, consistent with her duties under ss 6 & 6A [TAA], the Commissioner will take into account the reduced LAQC loss attribution and applicable tax shortfall when determining the amounts payable for collection purposes in respect of the 1998 income year.

[70] Counsel for the Plaintiffs relied on the statement by the Commissioner that

she was making the reductions referred to “consistent with her duties under ss 6 and

[71] The affidavit filed for the Commissioner in opposition to the application for review, affirmed by Michael Anthony Cook, does not address the deductions or paragraph 12 of the letter.³¹In submissions, counsel informed me that the allowances made reflected concessions made in the course of the challenge proceedings. Whatever the reason for the deductions, the statements in paragraph 12 do not affect the view I take of this matter. The issue I am required to determine is whether the Commissioner has the duty alleged and for the reasons given I have decided she does not.

[72] Given the conclusion I have reached it is not necessary to consider the other grounds of review, as these depended on my finding that the Commissioner was under a duty to recalculate as alleged.

[73] I do not consider that the Commissioner has the duty for which the Plaintiffs contend. Accordingly, I am not satisfied that any ground of review has been made

³⁰Letter Inland Revenue to BDO Auckland in respect of G A Pebbles dated 6 December 2012, at

High Court of New Zealand Decisions

Peebles v Attorney-General [2014] NZHC 2635 (24 October 2014)