Media release - 25 November 2010

Internal Tax Summary of Amendments in New Tax Bill

This week’s Taxation (Tax Administration and Remedial Matters) Bill proposes many changes for taxpayers, some favourable and others not so much.

The most objectionable proposed change for taxpayers is the proposal to add an additional procedural step for taxpayers initiating a dispute with the Inland Revenue Department.  If enacted, the impact of the changes is the revocation of the current unilateral opt-out right of taxpayers to go straight to Court to have their case heard.

Under the new proposals the taxpayer will have to request a notice from the Commissioner permitting a challenge to be commenced. The taxpayer has no recourse if the Commissioner refuses. In addition, the Commissioner it not entitled to agree under the proposals unless the mandatory parts of the disputes procedures have been completed, which will mean that most of the cost and time will already have been borne by both parties.

This change has been vigorously opposed by taxpayers, and strong submissions in opposition have been made by NZICA and the Law Society, as well by the wider tax community following the release of the Officials Paper preceding the Bill.

Ironically the opt-out provisions have only been reconsidered because taxpayers have been calling for the opt-out to extend to disputes initiated by the Commissioner as well. Far from being extended, taxpayers’ right to access the Courts without being bound to the lengthy and expensive disputes process has been further compromised.  

It is important to note however that at any time, if the parties are in agreement that the Court is a better place to end their dispute, the disputes process does not need to be completed.  The key point is that the Commissioner will ultimately control when taxpayers can go to Court in any dispute and taxpayers have no recourse if they disagree with the Commissioner’s approach.

On the other hand, the news is not all bad for taxpayers. The obligations of the Commissioner and taxpayers in a dispute commenced by the taxpayer have been aligned to remove a former advantage to the Commissioner to not complete one of the steps.   

Likewise a limited extension allowing taxpayers the right to file disputes documents outside the legislated time frames has been proposed where a taxpayer has shown a “demonstrable intention” to complete the disputes process at the time the deadline was missed.  If the Commissioner is not convinced that the taxpayer had this intention, a taxpayer can challenge that but should be aware that the four year time limit for increasing assessments would automatically be extended by the period it took to dispute the issue.

In addition, the increasing frustration of individuals in arguing for the deductibility of Use of Money Interest paid for tax shortfalls has had an attempted clarification. While taxpayers will still have to show that they spent the money they should have paid as tax towards their business, the capital limitation has been removed for this purpose.

Lastly, the secrecy provisions have been relaxed to facilitate better information sharing with other government agencies, and also in situations where it is reasonable (but perhaps not necessary) for the Commissioner to release information that was previously secret. The latter relaxation may cause anxiety among taxpayers but it could also work to their advantage, as it would seem to further highlight that the Commissioner could release sanitised Adjudication Reports on the basis that it was “reasonable” to do so in the IRD’s push for consistency.  

Author:

Kirsty Keating, Executive Director. Tax Controversy. Ernst & Young NZ

Disclaimer: This article provides general information, does not constitute advice and should not be relied on as such. Professional advice should be sought prior to any action being taken in reliance on any of the information.

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