Effect of Company Reinstatement on Statutory Time Bar
Great North Motor Company Limited (in receivership) v Commissioner of Inland Revenue (2016) 27 NZTC 22,079
The High Court has upheld assessments issued more than four years after the relevant tax returns were filed on the basis that the tax returns were wilfully misleading. The facts were complicated but the case does not traverse new ground except in one respect: in the course of the argument, interesting submissions were made about the effect on the statutory time bar of the reinstatement of the subject company to the register. This note is confined to that topic.
The taxpayer argued that the Commissioner was out of time to raise the assessments. Most of the assessments were issued by the Commissioner more than four years after they were filed, and hence after the time bar for assessment imposed by section 108 of the Tax Administration Act 1994 (“TAA 1994”). However, for much of that period, the taxpayer had been removed from the companies register. So, the Commissioner contended those returns were nullities and the time bar did not apply, as it could not run during that time.
The taxpayer argued, however, that section 330 of the Companies Act 1993 (“CA 1993”) provides that if a company is restored to the register - as the taxpayer was - the company is deemed to have continued in existence as if never removed from the register, thereby implying the time bar is engaged.
The Commissioner advanced an alternative argument that because the taxpayer’s tax returns were wilfully misleading, a statutory exception to the time bar was engaged in all events.
The Commissioner argued that the tax returns that were filed while the taxpayer was deregistered were nullities and so the time bar did not apply. The taxpayer considered, however, that section 330 of the CA 1993 deems a restored company to have always been in existence, retrospectively validating the tax returns and engaging the time bar.
Section 330(2) provides that “A company that is restored to the New Zealand register shall be deemed to have continued in existence as if it had not been removed from the register.”
The Judge considered the issue to be more nuanced than the parties put it. He considered it is clear from section 15 of the CA 1993 that, once removed from the register, a company does not exist in law. Section 15 provides “A company is a legal entity in its own right separate from its shareholders and continues in existence until it is removed from the New Zealand register.” However, he accepted that section 330 provides that the actions of a deregistered company are not treated as nullities upon the company’s restoration to the register. Accordingly a tax return filed while a company is unregistered can be retrospectively validated.
However, the Judge considered that validation does not backdate the return to the time of filing, noting:
The case has been appealed on several grounds and, given the opportunity, the Court of Appeal may look more closely at the section 330 argument. It may choose to reconcile the cases where the Commissioner has relied on the deeming provision (eg, Spencer v Commissioner of Inland Revenue (2004)), and others (such as this one) where she contends that the provision does not affect the outcome. At present, the Commissioner could easily be accused of choosing to apply the provision in whichever manner suits the circumstances. The Court may wish to consider whether it can be right that the Commissioner can have her cake and eat it too.
© G D Clews, 2017