Allen Case

Facts

The taxpayers had not filed the returns for the 2000 and 2001 tax years. On 8/4/02, the Commissioner made default assessments on those years according to section 106 of the Tax Administration Act 1994. Those defaults assessments were for the overdue returns in 2000 and 2001. On 15 July 2002, the taxpayer filed notice of claim in TRA challenging Commissioner’s default assessment. He also made an NOPA application to commence proceedings outside of response period. On 31 July 2002, he filed the 2000 and 2001 returns showing nil returns for both years. The Commissioner struck out his claim because it was out of time and they issued a Notice of Response to reject the taxpayer’s NOPA. The taxpayer brought the dispute to the TRA and High Court. However, both Courts declined the taxpayer’s dispute and struck out the taxpayer’s claim.

Issue

The issue in this case relates to the dispute process, which the taxpayer wanted to take to challenge the “default assessment” of the Commissioner.

Tax Law (Tax Administration Act 1994)

Section  89AB: Response periods

Section 89D: Taxpayers may issue notices of proposed adjustment

Section 8B: When disputant entitled to challenge assessment

Taxpayer’s view

The taxpayer stated that the only way they can challenge Commissioner’s “default assessment” is too provide tax returns for those tax years as in section 89D. Thus, he said that when he filed those returns. It would replace the “default assessments” and the Commissioner could start the challenge process under Part 4A.

Commissioner’s view

The Commissioner put forward a “default assessment” under section 106 of the TAA as there were no returns filed for those tax years. Moreover, the “default assessment is not different from other assessments as it would be the starting point for dispute under part 4A and 8A. The only difference is that when taxpayer wants to challenge default assessment, they must issue NOPA and furnish a tax return for the assessment period (section 89D(2). Therefore, the TRA would strike out the dispute under section 138B(3)

Court’s view

The Judge looked at whether it is right for the TRA to strike out the taxpayer’s challenge under section 138B. According to s 138B(3), a proposed adjustment must be the subject to the challenge. An adjustment proposed is in a NOPA and the tax return itself is not a proposed adjustment. Therefore, in order to bring the dispute to the TRA, the taxpayer had to issue a NOPA within the applicable response period. Before doing that, they also had to furnish a return as required under section 89D. The Judge also agreed with the Commissioner’s view on “default assessment”. He stated that taxpayers must start a NOPA in order to challenge the default assessment. The only difference is that the taxpayer needs to do both: start a NOPA process and furnish tax returns.  Thus, the TRA was entitled to strike out the taxpayer’s claim because of the taxpayer’s failure to comply with s 138B.