The High Court has struck out a Trust’s application for judicial review of decisions by the Commissioner and Taxation Review Authority (TRA) for lack of jurisdiction. The Court found that there was no jurisdiction because the Trust’s application for review did not fall within the two narrow categories where judicial review was available set out by the Supreme Court in Tannadyce Investments Ltd v Commissioner of Inland Revenue  NZSC 158,  2 NZLR 153. Even if there was jurisdiction, the Trust’s statement of claim disclosed no arguable cause of action and was also struck out on that basis.
The applicant, Mr Mawhinney, was a trustee of the Sixty-Six Auckland Trust (the Trust), the taxpayer. The case revolved around GST returns filed by the Trust in 2008 and 2009, and the processes which followed.
For the period ended 31 July 2008, the Trust claimed a GST refund of $144,706.72 on the basis it had purchased a property for approximately $1.3m. For the period ended 31 March 2009, the Trust returned GST output tax of $144,444.44 on the basis it had sold the property for approximately $1.3m.
The Commissioner formed the view that the Trust was not carrying on any taxable activity and that the property was never supplied to the Trust and the Trust never paid for it. The Commissioner reassessed the July 2008 refund to nil (the 2008 reassessment) and the input credit claim for the purchase of secondhand goods was disallowed. The Commissioner reassessed the March 2009 GST return to nil. This removed the corresponding output tax liability on the sale of the property. The Commissioner did not issue a notice of proposed adjustment (NOPA) because of s 89C(eb) of the Tax Administration Act 1994. Section 89C(eb) provides that the Commissioner need not issue a NOPA before making an assessment where there are reasonable grounds to believe that the taxpayer had been involved in fraudulent activity.
On 4 May 2011, the Commissioner cancelled the Trust’s GST registration with effect from the taxable period ending 30 September 2010 on the basis that the Trust was not carrying on any taxable activity. On 29 July 2011, the Trust issued a NOPA in relation to the 2008 reassessment which initiated the disputes procedures under Pt 4A of the Tax Administration Act. The Commissioner issued a notice of response (NOR) on 26 September 2011 rejecting the Trust’s NOPA.
Although the normal course was for the disputes procedures to be followed before the matter progressed to the TRA, on 3 August 2011, the Trust issued challenge proceedings in the TRA in relation to the 2008 reassessment. The Commissioner asked the Trust whether it intended to pursue the disputes procedures or the challenge procedures. The Trust advised that it wished to pursue the challenge in the TRA and asked for the disputes procedures to be put in abeyance in the meantime.
The Commissioner applied to strike out the challenge proceedings but before the strike out application was heard, the Trust discontinued the challenge proceedings on 30 September 2013. On the same day, Mr Mawhinney wrote to the Commissioner on behalf of the Trust asking to progress the dispute. The Commissioner declined the request on 18 October 2013. The Commissioner heard nothing further until 3 August 2015 when Mr Mawhinney wrote to Inland Revenue on behalf of Trust asking for a refund of the excess GST.
The Trust had registered for GST again, effective from 20 January 2012, but the Commissioner cancelled the Trust’s GST registration with effect from 30 September 2015.
The parties exchanged further correspondence. On 19 September 2016, Inland Revenue advised Mr Mawhinney it did not consider there was any live dispute or excess GST refund available.
In August 2017, the Trust filed a notice of claim in the TRA in relation to the 2008 reassessment and the cancellation of the Trust’s GST registration with effect from 30 September 2015. The TRA struck out the Trust’s challenge in relation to the 2008 reassessment pursuant to s 138H on the basis that the challenge had not been commenced within the required statutory response period and therefore did not comply with the requirements of s 138B of the Tax Administration Act (Case 2/2018 (2018) 28 NZTC ¶4-009,  NZTRA 02).
The Trust commenced judicial review proceedings in February 2018 and sought to challenge the following decisions:
- The Commissioner’s decision not to complete the disputes process in accordance with the Trust’s NOPA. The Trust sought an order requiring the Commissioner to complete that process.
- The Commissioner’s decision to invoke s 89C(eb) in respect of the 2008 reassessment. The Trust sought a declaration of the “true interpretation” of that sub-section.
- The TRA’s decision on 29 January 2018 to strike out the part of the Trust’s challenge relating to the 2008 reassessment. The Trust sought an order setting aside that decision.
The High Court’s decision
The High Court struck out the Trust’s application for judicial review and found as follows:
- It was clear from a review of the legislation then in force that the Trust had received incorrect advice that the separate disputes and challenge processes were to be initiated at the same time. The Trust was not able by law to commence challenge proceedings until after the Commissioner’s NOR was issued on 26 September 2011. The Trust had, however, issued challenge proceedings on 3 August 2011, which had been accepted for filing.
- The Trust was unable to suspend the disputes process while it pursued the challenge process. An assessment could not be challenged unless the disputes process had been undertaken or, under the legislation then in force, the taxpayer opted out of the disputes process. By opting to pursue the challenge process, the Trust was unable to complete the disputes process at some later stage.
- The Trust’s view that in order for the disputes process to cease it was necessary for the Trust and the Commissioner to agree to this in writing pursuant to s 89N(1)(c)(viii) was wrong. That provision was in addition to the power of the taxpayer to opt out of the disputes process under former s 138B(3). A taxpayer using former s 138B(3) did not require the agreement of the Commissioner to do so and the Trust did not in fact seek the Commissioner’s agreement before initiating the challenge process.
- The reasons why the Trust opted out of the disputes process and why it discontinued the challenge process were immaterial.
- The Commissioner was not required to complete the disputes process. By discontinuing the challenge process before the TRA, the dispute was effectively at an end. While there was no specific provision which provided that a notice of discontinuance automatically ends the disputes process, there was no other logical and reasonable outcome based on a purposive interpretation of the legislation.
- While the Commissioner’s decision to issue a NOPA under s 89C(eb) could not be challenged pursuant to s 138E(1)(iv), the resulting assessment clearly could and was challenged by the Trust when it invoked its dispute rights and challenge rights in 2011. These procedures were not available now because the Trust had exhausted them.
Mawhinney v C of IR HC Auckland  NZHC 2604, 5 October 2018.