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High Court of New Zealand Decisions |
Last Updated: 24 July 2023
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IN THE HIGH COURT OF NEW ZEALAND HAMILTON REGISTRY
I TE KŌTI MATUA O AOTEAROA KIRIKIRIROA ROHE
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CIV 2021-419-288
[2023] NZHC 1 |
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UNDER
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The Income Tax Act 2007, the Tax Administration Act 1994 and s 56(3) of the
Senior Courts Act 2016
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IN THE MATTER OF
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An application for leave to appeal to the Court of Appeal
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BETWEEN
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VERONICA ANNE HOEBERECHTS
Applicant
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AND
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THE COMMISSIONER OF INLAND REVENUE
Respondent
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On the papers
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Counsel:
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The applicant in person
K Naik-Leong for the respondent
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Judgment:
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5 January 2023
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JUDGMENT OF CAMPBELL J
This judgment was delivered by me on 5 January 2023 at 3.00pm pursuant to Rule 11.5 of the High Court Rules
Registrar/Deputy Registrar
HOEBERECHTS v THE COMMISSIONER OF INLAND REVENUE [2023] NZHC 1 [5 January 2023]
[1] The Taxation Review Authority (the Authority) dismissed a challenge by the applicant, Ms Hoeberechts, to an income tax assessment by the respondent, the Commissioner of Inland Revenue (the Commissioner).1 Ms Hoeberechts filed an appeal from the Authority’s decision. At the same time, she made an interlocutory application for leave to appeal out of time (her understanding at that time being that her appeal was filed late).
[2] In a judgment dated 31 August 2022, I declined Ms Hoeberechts’ application for leave to appeal out of time.2
[3] Ms Hoeberechts wishes to appeal from my decision to the Court of Appeal. Because my decision was on an interlocutory application, she requires leave to appeal under s 56(3) of the Senior Courts Act 2016. Ms Hoeberechts applies for leave. She says I should grant leave for one or both of two reasons. First, she says that, contrary to her earlier understanding, her appeal from the Authority’s decision was not late, so that she did not require leave to appeal out of time. Secondly, she says her proposed appeal from my decision meets the test for granting leave under s 56(3).
[4] The Commissioner opposes the grant of leave to appeal.
[5] The parties were content for the application to be determined on the papers.
[6] Two issues arise on the application:
(a) Did Ms Hoeberechts require leave to appeal from the Authority’s decision out of time?
(b) Should leave to appeal from my decision be granted?
1 Case 2/2021 [2021] NZTRA 3, (2021) 30 NZTC 6-001.
2 Hoeberechts v Commissioner of Inland Revenue [2022] NZHC 2200.
Did Ms Hoeberechts require leave to appeal from the Authority’s decision out of time?
[7] The Authority’s decision was dated 1 October 2021. Any appeal had to be brought within 20 working days.3 To bring the appeal, Ms Hoeberechts had to file a notice of appeal and serve it on the Commissioner.4
[8] Twenty working days from 1 October 2021 was 1 November 2021. Ms Hoeberechts did not file or serve a notice of appeal by that date.
[9] At 5.40 pm on 1 November 2021, Ms Hoeberechts informed the Commissioner by email that she intended to appeal the Authority’s decision. Counsel for the Commissioner responded to Ms Hoeberechts the next day, telling her that she would have to apply for special leave to appeal out of time.
[10] Ms Hoeberechts’ notice of appeal and a letter seeking special leave to appeal out of time were filed by Ms Hoeberechts on 8 November 2021.5 On 11 November 2011, Ms Hoeberechts provided the Commissioner with a copy of her notice of appeal (but not of her letter seeking leave). Ms Hoeberechts served a complete set of her documents on the Commissioner on 25 November 2021.
[11] The Commissioner opposed Ms Hoeberechts’ application for leave to appeal out of time.
[12] Ms Hoeberechts’ application was heard before me on 21 June 2022. Both parties filed detailed written submissions in advance of the hearing. Those were supplemented by oral submissions at the hearing. All these submissions assumed that Ms Hoeberechts was late in filing her notice of appeal and therefore required leave to appeal out of time. My judgment proceeded on the same basis.6
3 High Court Rules 2016, r 20.4(2)(b).
4 Rule 20.6(1).
6 Hoeberechts v Commissioner of Inland Revenue [2022] NZHC 2200 at [11]–[14].
Ms Hoeberechts now says her appeal was in time
[13] Ms Hoeberechts filed and served an application for leave to appeal from my decision on 29 September 2022. The Commissioner filed a notice of opposition dated 13 October 2022.
[14] Ms Hoeberechts then, on 20 October 2022, filed a response to the Commissioner’s notice of opposition. In her response, Ms Hoeberechts for the first time submitted that she had brought her appeal from the Authority’s decision in time.
[15] Ms Hoeberechts’ submission is based on r 1.18 of the High Court Rules 2016:
1.18 When time expires when court registry is closed
When the time for doing any act at a registry of the court expires on a day on which that registry is closed, so that that act cannot be done on that day, the act is in time if done on the next day on which that registry is open.
[16] Ms Hoeberechts submits that the Hamilton High Court registry was closed, as a result of COVID-19 restrictions, from at least 1 November 2021 until 9 am on 18 November 2021. Therefore, Ms Hoeberechts submits, her notice of appeal was not due to be filed until 18 November 2021 and was not filed late.
Was Ms Hoeberechts’ appeal brought in time?
[17] To bring an appeal from the Authority’s decision, Ms Hoeberechts had to file a notice of appeal and serve it on the Commissioner.7 Ms Hoeberechts had to do both these things by 1 November 2021, subject to any legislative provision extending the time for doing so.
[18] Rule 1.18 deals with the time for doing an act at a registry. That includes filing a document. But r 1.18 does not deal with the time for serving documents.
[19] The short answer to Ms Hoeberechts’ submission is that, even if the Hamilton High Court registry had been closed on the relevant dates, this would not have had any effect on the time by which she had to serve her notice of appeal on the Commissioner.
7 Rule 20.6(1).
She did not serve any notice of appeal on the Commissioner by 1 November 2021. Her appeal therefore was not brought in time. She therefore required leave to appeal from the Authority’s decision out of time.
[20] Further, I do not accept Ms Hoeberechts’ submission that r 1.18 was engaged so that her notice of appeal was not due to be filed until 18 November 2021. From at least 1 November 2021 to 9 am on 18 November 2021, the Waikato region was subject to COVID-19 Alert Level 3. This meant that the public counter at the Hamilton High Court registry was closed to the public. However, cl 9 of the Protocol for Alert Level
3 (issued by the Chief High Court Judge on 28 February 2021) provided that “[d]ocuments may be filed electronically or by post or courier”. Rule 1.18 is engaged only where, as a result of a registry’s closure, a particular act cannot be done at that registry. Here, even if the Hamilton registry was “closed” from 1 to 18 November 2021 (a point I do not need to decide), that closure did not prevent Ms Hoeberechts from filing her notice of appeal on any of those days. This is evident from Ms Hoeberechts having electronically filed her notice of appeal on 8 November 2021.
[21] For both these reasons, I conclude that Ms Hoeberechts did require leave to appeal from the Authority’s decision out of time.
Should leave to appeal from my decision be granted?
Principles governing leave to appeal interlocutory decisions
[22] In Ngai Te Hapu Inc v Bay of Plenty Regional Council, the Court of Appeal, though refraining from laying down definitive principles, said leave to appeal should be granted under s 56(3) only where:8
(a) There is an arguable error of law or fact; and
(b) The significance or implications of that arguable error, either for the particular case or for the applicant or as a matter of precedent, warrants the further delay the appeal process will involve.
[23] In Tomar v Tomar, the Court of Appeal referred with approval to the considerations that Fitzgerald J, in Finewood Upholstery Ltd v Vaughan, had recognised as relevant on an application for leave to appeal under s 56(3). The Court said those considerations were:9
(a) A high threshold exists.
(b) The applicant must identify an arguable error of law or fact.
(c) The alleged error should be of general or public importance warranting determination or otherwise of sufficient importance to the applicant to outweigh the lack of general or precedential value.
(d) The circumstances must warrant incurring further delay.
(e) The ultimate question is whether the interests of justice are served by granting leave.
[24] Other authorities have, correctly in my respectful view, said that the proposed appeal must be of sufficient significance to warrant the delay and cost of the appeal.10
[25] In summary, Ms Hoeberechts must satisfy me that:
(a) There is an arguable error of law or fact; and
(b) The alleged error is of sufficient importance (either generally or to Ms Hoeberechts) to warrant the cost and delay of the appeal.
[26] Before addressing these matters, I will outline Ms Hoeberechts’ dispute with the Commissioner, the Authority’s decision, and my earlier judgment on her application for leave to appeal the Authority’s decision out of time.
Ms Hoeberechts’ dispute with the Commissioner and the Authority’s decision
[27] Ms Hoeberechts received a lump sum payment of $188,386.95 from the Accident Compensation Corporation (ACC) in November 2017. The payment was in respect of an injury that Ms Hoeberechts suffered in 2014. The payment resulted from a decision of the District Court in 2017, overturning ACC’s view of Ms Hoeberechts’ entitlement. The payment was therefore backdated compensation, being in respect of shortfalls in compensation ACC should have paid to Ms Hoeberechts over the period April 2014 to September 2017.
[28] ACC allocated the backdated payment in the following way:
(a) ACC paid $38,386.65 to the Ministry of Social Development in respect of taxable benefit payments that Ms Hoeberechts had received from that Ministry from April 2014 to September 2017.
(b) ACC treated the balance of the payment (roughly $150,000) as a PAYE payment, paying the tax due to Inland Revenue and the remainder to Ms Hoeberechts.
[29] Ms Hoeberechts’ proposed appeal to this Court was in respect of the tax treatment of the $150,000 payment. The Commissioner assessed the $150,000 as taxable on a cash basis for the tax year ended 31 March 2018 — the tax year in which Ms Hoeberechts received the payment. This meant that Ms Hoeberechts had a very high taxable income in the year ended 31 March 2018, and much of that income was taxed at the highest marginal tax rate.
[30] Ms Hoeberechts challenged that assessment. Before the Authority, her primary argument was that, rather than taxing the $150,000 payment in the year of receipt, it should have been taxed on an accrual basis — that is, spread across the tax years ending 31 March 2015 to 2018. On that position, none of her income would have attracted the highest marginal tax rate. Ms Hoeberechts’ secondary argument was that the Commissioner had a discretion to apply the lower tax rates that would have applied had the backdated payment been allocated to the tax years over which her entitlement
to ACC compensation had accrued. Ms Hoeberechts also argued that conduct by the Commissioner was reprehensible.
[31] The Authority heard Ms Hoeberechts’ challenge on 28 September 2021. In a decision dated 1 October 2021, the Authority held that taxing backdated weekly compensation payments in the year of receipt was long established and a deliberate policy setting in the Income Tax Act 2007, and that the Commissioner had no general discretionary power to exempt taxpayers from tax laws.11 The Authority also rejected Ms Hoeberechts’ criticism of the Commissioner and her officials.12 The Authority therefore rejected Ms Hoeberechts’ challenge to the Commissioner’s assessment.
My earlier judgment on Ms Hoeberechts’ application for leave to appeal the Authority’s decision out of time
[32] In my earlier judgment, I noted13 that the principles governing the exercise of a discretion to grant or deny an extension of time to appeal had been authoritatively summarised by the Supreme Court in Almond v Read.14 The ultimate question was what the interests of justice require in the particular circumstances of the case. Relevant factors included the length of the delay, the reasons for the delay, the conduct of the parties (particularly of the applicant for leave), any prejudice to the respondent, the significance of the issues raised by the proposed appeal (both to the parties and more generally) and the merits of the proposed appeal.15
[33] I also recorded16 that the Supreme Court said that a refusal of an extension of time based substantially on the lack of merit of a proposed appeal should be made only where the appeal is “clearly hopeless”. I said that the Supreme Court said that one example of a clearly hopeless appeal would be where, on facts to which there is no challenge, the appeal “could not possibly succeed”.17
11 Case 2/2021 [2021] NZTRA 3, (2021) 30 NZTC 6-001 at [28]–[31].
12 Hoeberechts v Commissioner of Inland Revenue [2022] NZHC 2200 at [32]–[36].
13 At [16].
14 Almond v Read [2017] NZSC 80, [2017] 1 NZLR 801.
15 At [38]–[39].
16 At [17].
17 At [39(c)].
[34] I noted that Ms Hoeberechts’ delay in filing the notice of appeal was short, that her delay was attributable in part to difficulties that she experienced as a result of restrictions that were then in place to control COVID-19, and that the Commissioner had not been prejudiced by the delay. I said these factors all favoured extending time to appeal.18
[35] I therefore said that the only basis on which I could refuse an extension of time would be that the proposed appeal was clearly hopeless, in the sense that, on facts to which there was no challenge, the appeal could not possibly succeed. I observed that was the principal basis upon which the Commissioner opposed leave.19
[36] I then found that neither of the two grounds on which Ms Hoeberechts wished to appeal the Authority’s decision (the “tax treatment ground” and the “discretionary ground”) could possibly succeed. As to the former, I found:20
(a) A long line of appellate cases holds that taxpayers who are not in trade are appropriately taxed on a cash basis. It is this principle that underlies the decisions of the Authority, and of the High Court in Hollis v Commissioner of Inland Revenue,21 that backdated payments of ACC compensation (and other backdated payments) are derived in the year of receipt.
(b) Although some of those decisions dealt with different legislation, there is no material difference between that earlier legislation and the Income Tax Act 2007. Section BD 3(3) of that Act requires regard to be had to case law that requires some people to recognise income on an accrual basis and others on a cash basis. On Ms Hoeberechts’ proposed appeal this Court (and any appellate court) would be bound to apply the principle that taxpayers who are not in trade are appropriately taxed on a cash basis.
18 Hoeberechts v Commissioner of Inland Revenue [2022] NZHC 2200 at [18]–[20].
19 At [20].
20 At [25]–[44].
21 Hollis v Commissioner of Inland Revenue (2010) 24 NZTC 23,967 (HC) at [28].
(c) Ms Hoeberechts was not in trade at any relevant time.
(d) Accordingly, on the unchallenged facts, Ms Hoeberechts could not possibly succeed on the tax treatment ground.
[37] As to the latter ground, Ms Hoeberechts submitted that the Commissioner had discretionary powers to alter the usual application of tax law. I found:22
(a) The Court of Appeal had repeatedly held that liability under income tax legislation is imposed by statute, not by the Commissioner.23 It followed that the Commissioner has no discretion to exercise when assessing the amount of a taxpayer’s liability24 — and it was the assessment of Ms Hoeberechts’ tax liability that would be in issue in her proposed appeal.25
(b) Accordingly, Ms Hoeberechts could not possibly succeed on the discretionary ground.
[38] For those reasons, I found that Ms Hoeberechts’ proposed appeal could not possibly succeed, and therefore declined to extend time for her to appeal.
Is there an arguable error of fact or law?
[39] In the documents that Ms Hoeberechts has filed in support of her application for leave to appeal from my decision, she raises several alleged errors of fact or law.
[40] First, Ms Hoeberechts refers in detail to the ways in which COVID-19 restrictions prevented her from filing her notice of appeal on time. She suggests that I took insufficient account of those restrictions. I do not accept that there was any
22 Hoeberechts v Commissioner of Inland Revenue [2022] NZHC 2200 at [45]–[47].
23 Brierley Investments Ltd v Bouzaid [1993] 3 NZLR 655 (CA) at 669; Commissioner of Inland Revenue v Canterbury Frozen Meat Co Ltd [1994] 2 NZLR 681 (CA) at 689; Commissioner of Inland Revenue v Michael Hill Finance (NZ) Ltd [2016] NZCA 276, [2016] 3 NZLR 303 (CA) at [80].
24 Commissioner of Inland Revenue v Michael Hill Finance (NZ) Ltd [2016] NZCA 276, [2016] 3 NZLR 303 (CA) at [80].
25 Not, for example, the question whether the Commissioner should exercise her discretion to write off tax under s 177C of the Tax Administration Act 1994.
arguable error on my part in this respect. I found that Ms Hoeberechts’ delay in filing her notice of appeal was caused in part by COVID-19 restrictions and that this favoured extending time for her to appeal.26
[41] Secondly, Ms Hoeberechts submits that I should have ruled only on the reasons for her late filing of her notice of appeal, and not engaged in the merits of her appeal. She submits that, in engaging with the merits, I denied her the right to be heard.
[42] I do not accept that I was arguably in error in engaging in the merits. The Supreme Court’s decision in Almond v Read makes it clear that the court may engage with the merits, and that an extension of time can be refused where, on facts to which there is no challenge, the appeal could not possibly succeed.
[43] Nor do I accept that Ms Hoeberechts was arguably denied the right to be heard. The Commissioner’s notice of opposition to Ms Hoeberechts’ application for an extension of time raised the lack of merit in the proposed appeal. Ms Hoeberechts responded to that point in the written submissions that she filed in advance of the hearing. At the hearing, I said to Ms Hoeberechts that the Commissioner appeared to be putting most store in the argument about the merits of the proposed appeal. I specifically asked Ms Hoeberechts to tell me what she had to say about that.
[44] Thirdly, Ms Hoeberechts submits that I erred in finding that neither of her proposed grounds of appeal could possibly succeed.
[45] As to the tax treatment ground, Ms Hoeberechts’ essential arguments are that I erred in the following ways:
(a) She says that s BD 3(3) of the Income Tax Act gives a taxpayer the right to choose to recognise income on either an accrual basis or a cash basis. I do not accept that this is arguable. The provision says that in determining the time of derivation of an amount of income, regard must be had to case law which requires some people to recognise income on an accrual basis and requires some people to recognise income on a
26 At [18] and [20].
cash basis. A taxpayer does not have a right to choose between the two bases.
(b) Ms Hoeberechts says that the long line of appellate cases that I relied on (holding that taxpayers who are not in trade are appropriately taxed on a cash basis) are irrelevant, because some are from other jurisdictions, some are dated, and none concern the tax treatment of backdated payments under the Accident Compensation scheme. This is not an arguable proposition. The appellate cases are part of the case law referred to in s BD 3(3). Regard therefore must be had to them in determining the time of derivation of the income in issue here.
[46] As to the discretionary ground, Ms Hoeberechts essentially repeats the submissions she made to me at the earlier hearing. I have already found this ground to be untenable, because the Court of Appeal has repeatedly held that liability under income tax legislation is imposed by statute, not by the Commissioner.27 Ms Hoeberechts’ repetition of her earlier arguments has not persuaded me that I was arguably in error in following those Court of Appeal cases.
[47] For all these reasons, I find that Ms Hoeberechts has not shown that there is an arguable error of law or fact in my earlier decision.
Is the alleged error of sufficient importance (either generally or to Ms Hoeberechts) to warrant the cost and delay of the appeal?
[48] I accept that the alleged error in my conclusion on the tax treatment ground is of significant importance both to Ms Hoeberechts and to others who have had backdated accident compensation payments taxed at a higher rate than would have been the case if the payments had been made at the correct time.
[49] But, as I said in my earlier judgment, I have no doubt that that treatment is in accordance with the Income Tax Act. Any change in that treatment is a matter for
27 At [46].
Parliament. Given my finding that there is no arguable error in my earlier decision, I must decline Ms Hoeberechts’ application for leave to appeal.
Result
[50] Ms Hoeberechts’ application for leave to appeal is declined.
[51] The Commissioner is entitled to costs on the application.
Campbell J
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