Inland
Revenue can be asked to review a tax assessment despite failures to challenge
tax assessments within time said the Court of Appeal when ordering Inland
Revenue reconsider a taxpayer’s claim that $1.4 million in tax losses be set
off against subsequent income.
Tax law allows taxpayers four months to
file any objection to a tax assessment.
Inland Revenue argued any delay drew a line under the assessment, it
could not be challenged in court later.
The Court of Appeal ruled section 113 of the Tax Administration Act
empowers Inland Revenue to correct any assessment even where no objection is
filed in time.
At issue was tax returns for six
consecutive tax years filed by Mr Adrian Padfield on behalf of Charter Holdings
Ltd. He left blank tax return questions
asking whether there was any claim for tax losses brought forward presuming,
incorrectly, that Inland Revenue kept a running total for each taxpayer of any
accumulating tax losses. Presented in
July 2014 with a tax demand that Charter Holdings pay $850,523 for tax arrears
of some $306,400 plus penalties and interest Mr Padfield was surprised to learn
Charter Holdings could not utilise accumulated tax losses of some $1.4 million. Charter had not completed its tax returns
correctly in the first place. Inland
Revenue said section 113 reviews can not be used to correct tax assessments
outside the statutory disputes process.
The Court of Appeal said it is illogical to argue courts have no right
to review Inland Revenue administrative processes because the statutory
objection procedure has not been followed.
It goes to the integrity of the tax system that taxpayers have a right
to ensure their tax returns are determined “fairly, impartially, and according
to the law”, the Court said.
Inland Revenue had refused to reconsider
Charter Holdings entitlement to past tax losses because a senior staffmember
doubted Mr Padfield’s credibility in failing to properly complete the disputed
tax returns. The Court said this
staffmember had made several mistakes of fact: she assumed Mr Padfield had
correctly noted losses carried forward in his own tax returns while not doing
the same when filing returns for Charter Holdings (in fact he was inconsistent claiming
losses carried forward in only one year of his personal returns); she suspected
trading income for Charter Holdings had been suppressed (without fully
investigating the position). Charter
Holdings’ claimed tax losses must be reconsidered by a different Inland Revenue
staffmember, the Court ruled.
Section 113 reviews are intended to
ensure a tax assessment is correct, said the Court of Appeal. The onus is on taxpayers to provide sufficient
information when asking an assessment be corrected.
Charter
Holdings v. Inland Revenue – Court of Appeal (13.10.16)
16.144