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Inland Revenue

Tax Policy

Chapter 10 - Other issues

This chapter discusses some other possible amendments to the TAA that, although relatively minor, logically fit within the scope of this review. They are a review of the use of the word “challenge” in the TAA and amendments to the rules related to the:

  • exceptions to when a Commissioner must issue a NOPA (in particular, section 89C(db)); and
  • financial relief rules (sections 177C(5) and (6)).

Use of “challenge”

10.1 There are numerous places in the TAA and the Income Tax Act 2007 in which the word “challenge” is used. [53] In the TAA, this terminology can generally be traced to wholesale changes that implemented the current disputes process. These amendments were necessary to ensure that the legislation was clear as to whether the “old” objection procedure or the “new” challenge procedure would apply to the assessment in question.

10.2 The term “challenge” in the TAA has a particular meaning that relates only to challenges under Part VIIIA. It may not, however, be sufficiently clear that a taxpayer who disagrees with an assessment by the Commissioner made under specific sections should first go through the disputes process in Part IVA. Only if the matter is unresolved after going through the standard disputes process should the assessment be challenged in a hearing authority.

10.3 Although the relevant provisions in Part VIIIA attempt to ensure that a dispute has first been through the dispute process, there is concern that sections 138B and 138C are not particularly clear.

10.4 This issue is compounded by later amendments that confer on taxpayers the right to “dispute or challenge… under Parts IVA and VIIIA”. [54]

10.5 We suggest a review of both Acts to ensure that appropriate terminology is used so that the disputes process is used in all appropriate circumstances. If necessary, this may include amendments to Part VIIIA to clarify this intent.

Section 89C(db)

10.6 Section 89C effectively allows the Commissioner to bypass the entire disputes process in certain limited circumstances. When these circumstances exist, the Commissioner may simply issue an assessment to the taxpayer.

10.7 The exception contained in section 89C(db) is where:

The assessment is made in relation to a matter for which the material facts and relevant law are identical to those for an assessment of the taxpayer for another period that is at the time the subject of court proceedings.

10.8 The intention behind section 89C(db) is that the Commissioner and the taxpayer do not need to go through the disputes process for every tax period in which a particular dispute is relevant. For example, a taxpayer adopts a particular income tax treatment of a series of annual transactions that occurred in each of the 2007, 2008 and 2009 income years and court proceedings are underway in respect of the 2007 transactions. Rather than having to complete the entire disputes process for the 2008 and 2009 periods, the Commissioner can simply issue an assessment for those periods that is consistent with the one issued for 2007. The later two periods can then be governed by the outcome of the court proceedings. Such an approach saves the compliance costs associated with unnecessary duplication.

10.9 However, the problem with the current wording of section 89C(db) is that there is no “corresponding” provision that relates to the actions to be taken by the taxpayer in the dispute. This means that, in the example above, even though the Commissioner can issue an amended assessment without having to go through the disputes process, a taxpayer cannot challenge that assessment without issuing a NOPA. If the taxpayer issues a NOPA then the Commissioner must issue a NOR before the taxpayer can then challenge at a hearing authority through the challenge provisions. (We note that if the proposed amendments to prevent a unilateral taxpayer opt-out at this stage were to be adopted, this problem could be further exacerbated.)

10.10 The requirement for a taxpayer to issue a NOPA in these circumstances clearly goes against the objective of section 89C(db), which is to provide a fast-track directly to a hearing authority for disputes that are essentially identical to those ones already being heard. Having all of the disputes at the hearing authority also provides the hearing authority with the opportunity to consolidate the proceedings if it considers such an approach desirable. A consequential amendment may also be necessary to section 138B to ensure that a disputant is immediately entitled to challenge the Commissioner’s assessment in these circumstances.

Suggested change

10.11 We suggest amending the TAA to clarify that a taxpayer does not have to issue a NOPA for an assessment made under section 89C(db) and can instead directly move to the challenge proceedings relating to that assessment.

Sections 177C(5) and (6)

10.12 This issue appears to be a simple oversight created by a mismatch between the TAA and the Income Tax Act 2007. It can be summarised as follows:

  • Section 177C(5) and (6) requires tax losses to be extinguished at the same time as outstanding tax is written off.
  • A “net loss”, as defined in section YA of the Income Tax Act, factors in losses removed under section 177C(5).
  • An “assessment” as defined in section 3 of the TAA includes a determination of a “net loss” for the purposes of the Income Tax Act.
  • Section 89C required a NOPA to be issued whenever the Commissioner is proposing to amend an assessment.

10.13 The result is that, under the current rules and unless a contrary position is agreed with the taxpayer, a NOPA is required to be issued by the Commissioner when tax losses are extinguished, even though the “main” decision – to write-off the tax debts – is not “disputable” by operation of section 138E. It seems illogical for there to be a situation where the Commissioner makes a non-disputable decision that is generally favourable to a taxpayer (that is, to write off the overall tax debt), but a mandatory side effect of that decision (to also extinguish tax losses) has to be subject to the disputes process.

Suggested change

10.14 We suggest amending section 89C to clarify that the Commissioner does not need to issue a NOPA in circumstances where the Commissioner has made a decision to write-off tax debt under section 177C. Such an amendment would clarify that write-off decisions are not intended to be subject to the dispute process and would also capture any extinguishment of tax losses under sections 177C(5) and (6).


53 See, for example, section 44(3), TAA and section DB 3, Income Tax Act 2007.

54 This language is found in Part V (Determinations). See, for example, section 91AAB(5).