Allen v CIR


Allen v CIR (2005) 22 NZTC 19,473

The Court of Appeal dismissed Mr Allen’s application for judicial review. The judgment sets out the procedure taxpayer’s should follow in responding to a default assessment, ie, one issued in the absence of a return. For many years a default assessment was disputed by filing a return. Taxpayers are now required to file their tax return and a notice of proposed adjustment (“NOPA”) within the appropriate response period.

The Commissioner issued default assessments to Mr Allen who some three months later, filed proceedings in the Taxation Review Authority (“TRA”) challenging the assessments. Some two weeks thereafter Mr Allen filed the relevant tax returns along with his NOPA that included a request that the Commissioner accept the NOPA.

The Court held that that a default assessment issued under s106 of the Tax Administration Act 1994 is not to be treated any differently from any other kind of assessment. Taxpayers should follow this procedure when responding to a default assessment:

1. File the relevant tax return.

2. Issue a NOPA to the Commissioner for the relevant period.

This is because a taxpayer must commence challenge proceedings under Part VIIIA of the TAA and, where a default assessment has been issued, the only way to do that is under s138B(3) of the Act. It is predicated on prior compliance with Part IVA of the Act. That involves the issue by the taxpayer of a NOPA and Notice of Response (“NOR”) from the Commissioner before proceedings are commenced.

Section 138H provides that the Commissioner may apply to have a challenge struck out in the event that a taxpayer fails to comply with section 138B of the Act. The Court accepted that a two month period to respond with the requisite NOPA may cause difficulties to the taxpayer but that section 89K of the Act provided a means for a taxpayer to apply for an extension in exceptional circumstances.

This case is a cautionary reminder that the statutory response period is absolute. Under the tax challenge procedures, in order for a taxpayer to dispute a default assessment, a NOPA must be given to the Commissioner within two months of an assessment being issued for tax periods prior to 1 April 2005, and within four months for periods from 1 April 2005.

© G D Clews, 2005

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