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Inland Revenue

Tax Policy

Chapter 8 - Dealing with small claims

This chapter suggests that:

  • the administrative opt-out process, as governed by the new opt-out guidelines, should effectively deal with all small claims;
  • the existing small claims jurisdiction of the TRA should be repealed; and
  • it is not necessary to introduce a specialist tribunal for “very small” tax disputes.

8.1 The fact that, in recent years, fewer tax cases reached the courts is consistent with the Richardson Committee’s aim of increasing the number of tax disputes that are resolved before the parties have to resort to the courts. On the other hand, anecdotal evidence suggests that taxpayers are unwilling to pursue small claims against the Commissioner because they find the disputes process too onerous. This occurs when the costs of the disputes process outweigh the amount of tax at stake and the taxpayer therefore concedes or settles the dispute.

8.2 The result of imposing the full disputes process on relatively small claims may be that some legitimate disputes are not being aired. This is likely to have repercussions for the integrity of the tax system, because the affected taxpayers may come to have less faith in its overall fairness.

8.3 This chapter looks at options for improving the small claims processes, including a review of the existing small claims jurisdiction of the TRA and the role of the bilateral opt-out process.

The small claims jurisdiction

8.4 To provide an avenue for small claims to be dealt with quickly and efficiently, the small claims jurisdiction of the TRA was established in 1996. This was supplemented by the release, in 1998, of standard practice statement INV-140, which sets out the Commissioner’s criteria for fast-tracking “small, simple disputes” to resolution.

8.5 Section 89E allows a taxpayer to elect for the dispute to be heard in the TRA acting in its small claims jurisdiction where the proposed adjustment is $30,000 or less. This election can be made in the taxpayer’s NOPA (for a taxpayer-initiated dispute) or their NOR (for a Commissioner-initiated dispute). [32] If the taxpayer makes this election, it is irrevocable. [33]

8.6 The election effectively circumvents the remainder of the disputes process through an exception to completing the full process, under section 89N, which applies when an election is made.

8.7 There is no separate set of rules that govern proceedings in the TRA when it is acting in its small claims jurisdiction. Taxpayers have the right to represent themselves in the general jurisdiction of the TRA, and this remains true for the small claims jurisdiction.

Perceived problems with the small claims jurisdiction

8.8 In addition to the $30,000 threshold, there are other limitations on the small claims jurisdiction. It can only hear disputes when: [34]

  • the facts are clear and not in dispute; and
  • there is no significant legal issue, or there are no other taxpayers that may be affected by the result.

8.9 These other limitations are fairly substantial in practice. There are very few tax cases involving no disputed facts. Often cases will turn on fact patterns, or the parties’ interpretation of factual matters. Equally, for cases when the facts are genuinely clear, it is often at least arguable that there is a “significant” legal issue at stake. Regarding the application to other taxpayers, the Commissioner certainly has the ability to argue that the fact pattern present in a particular case could be repeated across, for example, an industry group. Such an argument may result in the small claims jurisdiction being unavailable to a disputant even where the tax effect is small and the facts clear.

8.10 Another perceived disadvantage of electing the small claims jurisdiction (from both parties’ perspective) is that any decision of the TRA acting in its small claims capacity is final – that is, there is no right of appeal to the High Court. [35] There is no appeal right from the TRA acting in its general jurisdiction if the amount of tax involved is less than $2,000 or the amount of the net loss is less than $4,000. [36] However, by electing to have the case heard by the small claims jurisdiction, a taxpayer is effectively extending this general prohibition on appeals for any tax amounts between $2,000 and $30,000.

8.11 Perhaps as a result of these factors, there have been only six disputes taken to the small claims jurisdiction since its establishment in 1996. Comments from Judge Barber also suggest that, even on the few occasions the small claims jurisdiction has been used, it is not necessarily the best forum for those disputes. [37]


8.12 The former administrative “fast-track” procedure, set out in standard practice statement INV-140, is also of limited value. This is because it effectively replicates the small claims jurisdiction requirements of the facts being undisputed and the case not involving any significant legal issues. It also operates on a lower monetary threshold ($15,000) and introduces an additional requirement that the issue is non-recurrent for the particular taxpayer. It is anticipated that the revised SPSs will supersede INV-140.

What is a small claim?

8.13 There is no “one size fits all” model for determining what constitutes a small claim. For a small business owner, a tax dispute of $10,000 could have a material impact on the business while, for a large enterprise, a dispute of over $100,000 may not necessary be of major consequence in terms of the balance sheet or shareholder value. Equally, a large enterprise may consider it worthwhile pursuing a tax dispute for a relatively small sum because of the precedential value the outcome may have for it in subsequent tax periods.

8.14 That said, there needs to be effective procedures in place to identify disputes that do not justify application of the entire disputes process. Given that small disputes are proportionately more likely to affect SMEs (who bear a relatively higher proportion of tax compliance costs), these costs should, wherever possible, be kept to a minimum.

Possible solutions

Administrative opt-out

8.15 Under the proposed opt-out guidelines, the Commissioner will agree to opt-out of the disputes process when a meaningful conference has taken place and the tax in dispute is less than $75,000. Implementation of these guidelines will result in small claim disputants effectively having a “fast track” to the TRA.

8.16 Implementation of the opt-out guidelines is likely to result in fewer taxpayer elections to use the small claims jurisdiction of the TRA. As a result, there is a strong case for removing the small claims jurisdiction altogether. This would be achieved by removing a taxpayer’s ability to elect to use this jurisdiction, and repealing the appropriate provisions of the Taxation Review Authority Act and Taxation Review Authorities Regulations.

8.17 The opt-out route may be preferable to the small claims jurisdiction, both because taxpayers will retain their appeal rights and because a facilitated conference should be a valuable forum for ensuring that all information and arguments are exchanged and explored.

Removing the existing restrictions

8.18 Another possible approach to improving the process for small claims would be to amend the rules that stipulate when a taxpayer can elect to use the small claims jurisdiction of the TRA. In particular to:

  • increase the financial limit to $75,000; and
  • allow the small claims jurisdiction to decide factual disputes.

8.19 The lack of appeal rights would still make the election to the small claims jurisdiction more of a “gamble” for taxpayers. However, if appeals were allowed, the jurisdiction would hardly differ from the general TRA jurisdiction.

8.20 As we have noted, implementation of the opt-out guidelines should result in most disputes of under $75,000 being fast-tracked in any event. Taxpayers whose dispute is less than $75,000 will know from the outset that they will be eligible for fast-track treatment following a meaningful conference.

Making the small claims jurisdiction compulsory

8.21 The idea of bolstering these changes by making the small claims jurisdiction compulsory for disputes under a certain amount is not favoured. Compulsion would create genuine access to justice issues, assuming the restriction on appeals from the small claims jurisdiction remained. The full disputes process, or the process under an agreed opt-out, contains the most appropriate number of checks and balances to ensure that disputes are, as much as possible, resolved before they get to court. Given the uniqueness of each tax dispute, it is important to recognise that there are taxpayers whose disputes may be “small” (however that is defined) that nevertheless wish to go through the full disputes process.

Very small claims

8.22 The NZICA-NZ Law Society submission suggested that an area of particular concern is those disputes that are “very small”. Again, this term requires some definition, but for these purposes, we will assume that they are tax disputes where the tax at issue is $5,000 or under, which is the threshold used in Australia.

8.23 Currently, Inland Revenue has a strong emphasis on settling very small claims without the need for litigation. Although “settle” does not always equate to “compromise” (particularly in respect of core tax at stake), an approach based on care and management principles will continue to be taken for very small claims to ensure that the escalation of the dispute is proportionate to the amount at stake. [38]

8.24 We consider that the new administrative opt-out process and care and management principles should effectively deal with very small claims. We are not therefore recommending any legislative change in this area. Nevertheless, what follows is a discussion of the possible options for very small claims, including the establishment of a separate tribunal for very small cases, should specific legislated approaches be considered desirable.

Using the Disputes Tribunal

8.25 New Zealand already has a Disputes Tribunal for disputes where the amount is (generally) $15,000 or less. These disputes are resolved relatively quickly, with minimal cost and formality.

8.26 Although the system has intuitive appeal for also dealing with tax disputes, we think it is unsuitable for the following reasons, all of which are inter-related:

  • The jurisdiction of the Disputes Tribunal is predominantly related to quasi-contractual or damage to property disputes. By contrast, tax disputes generally hinge on statutory interpretation, (irrespective of whether the dispute is on a novel point or one where the application of existing case law is necessary).
  • The individuals who oversee Disputes Tribunal hearings are all well-trained in matters pertinent to the Disputes Tribunal, are respected members of their local communities and have valuable mediation and fact-finding skills. However, they are not judges and it is a lot to expect for members of the community to be well-versed in the intricacies of tax law and how it should apply to a particular set of facts.
  • Tax law is not a discipline that easily lends itself to “rough justice”. Even small tax disputes can, because of the complexity of legislation and case law, involve fine, lengthy and sometimes precedential legal arguments. The Disputes Tribunal, where disputes are habitually resolved in less than two hours and lawyers do not represent either party, is not an appropriate forum for this type of legal argument.

8.27 On the other hand, the Disputes Tribunal can be an effective forum for resolving factual matters. In theory, if a tax dispute was for a small amount and turned only on its facts (when both parties agree that the outcome will be settled if certain factual findings are made), the Disputes Tribunal would be a good place to have these disputes resolved quickly and efficiently. However, any advantage of moving such disputes to the Disputes Tribunal would be outweighed by the inconvenience of different tax disputes going to different authorities, depending on their nature. In addition, as purely factual disputes are now part of the opt-out guidelines, they should be able to be heard by the TRA without undue delay.

A specialist tribunal for very small claims

8.28 One option suggested in the NZICA-NZ Law Society submission is establishing a separate tribunal or authority for the hearing of very small tax claims. Such tribunals (or divisions of the main authorities) appear in various guises in Australia, Canada and the United Kingdom.

8.29 These countries allow for appeals to be made from decisions of the relevant hearing authority, although appeals from informal procedure cases in Canada are restricted to errors of law and matters akin to breaches of natural justice.


8.30 Australia has a tribunal known as the Small Taxation Claims Tribunal (STCT). This Tribunal, which is a branch of the Administrative Appeals Tribunal, hears tax disputes when the amount of tax in dispute is less than A$5,000. If a taxpayer wishes to challenge a decision of the Australian Tax Office, they complete an application form (available from the STCT website) that requires them to provide their personal details, the amount of tax in dispute, a copy of the decision they are disputing and their reasons for disagreeing with the decision. In sending in the application form, there is a non-refundable filing fee, currently set at A$68 (which can be waived in the case of hardship). On receipt of this application form, the ATO must provide the STCT (and the taxpayer) with all documents that it has used to arrive at its decision.

8.31 Any hearing by the STCT is preceded by a conference between the taxpayer and the ATO that is facilitated by a Tribunal Member or Conference Registrar. If this conference is unsuccessful in resolving the dispute, the matter will be heard by the STCT by way of a public, but informal, hearing.

United Kingdom

8.32 The United Kingdom and Canada both have broadly comparable fast-track procedures to take small claims to a relatively informal hearing body.

8.33 In the United Kingdom, the recently established Tax Chamber of the First-tier Tribunal will generally be the initial forum for all tax disputes. These disputes are divided into categories, depending on their level of complexity. The simplest cases are decided “on the papers” without any hearing. In such cases, taxpayers and Her Majesty’s Revenue & Customs produce the documentary evidence they believe supports their interpretation of events and the law. This is considered by the Tribunal and the parties are advised of the outcome. Where a hearing is requested by the taxpayer, or a “paper” classification is otherwise inappropriate, the case will be heard under the “basic” category. This provides for an informal hearing before the Tribunal where evidence is presented and witnesses called by the parties. The Tribunal aims to inform the parties of its decision at the conclusion of the hearing. [39] There is no filing fee.


8.34 In Canada (assuming the taxpayer’s original objection has been rejected by the Canadian Tax Authority), a taxpayer can elect to have their appeal against an assessment heard by the Tax Court of Canada’s “informal procedure”. The informal procedure is only available if the disputed federal tax is not more than C$12,000, the disputed loss is no more than C$24,000 or interest is the only matter in dispute. An informal hearing does not have to follow legal or technical rules of evidence and the decision of the Court has no precedential value. The filing fee for using the informal procedure is C$100, which is less than the fees payable for using the “general procedure”.

Application to New Zealand

8.35 An obvious difference between the countries mentioned above and New Zealand is that the taxpayer is appealing against a decision of the relevant tax authority. In other words, these jurisdictions operate on a fundamentally different structure, whereby the revenue authority issues an amended assessment and a dispute ensues from that. By contrast, in New Zealand, the bulk of the dispute takes place before the assessment being issued. The policy rationale for this difference is well documented.

8.36 Although it could be argued that for very small claims, the dispute could be more easily dispensed with by an independent body, the approach to issuing a NOPA (as outlined in the revised SPSs) should greatly assist taxpayers by ensuring that impartial decisions are taken earlier in the process than previously. This approach should therefore result in better choices being made around abandoning disputes with either a low prospect of success or when the costs of pursuing marginal cases are likely to outweigh the benefits of taking them through the disputes process.

8.37 The revised SPSs, in relation to the guidelines on NOPA size, should also ensure that the documents that are produced by the Commissioner in very small claims are concise, so that responding to them does not place an undue compliance cost on the taxpayer concerned.

8.38 Another key disadvantage in adding another disputes tribunal layer into the New Zealand system is the associated costs. The benefits of having a separate, informal disputes forum for very small claims do not appear to outweigh the costs associated with the establishment and ongoing administration of such a body. Given that claims of up to $75,000 are likely to be fast-tracked to the TRA in any event, taxpayers can take some comfort from the fact that compliance costs should be minimised in all “smaller” disputes.

8.39 The TRA also has a good deal of flexibility in its ability to set its own processes. It is a commission of enquiry, rather than governed by strict court rules, and taxpayers can represent themselves. This flexibility provided to the TRA should continue to ensure that very small claims that do make it to hearing are dealt with efficiently.

Filing fees

8.40 In the interests of access to justice for small claims, the current TRA filing fee of $400 may be considered disproportionately large. However, given the amount of time that taxpayers will generally spend on the dispute, coupled with the cost of any professional advice in reaching the hearing stage (even if the opt-out is used), we do not consider the fee to be prohibitive. In any case, Regulation 10A of the Taxation Review Authorities Regulations allows the taxpayer to apply to the Registrar to have the filing fee waived in cases of hardship.


32 In the circumstances set out in section 138O(1) of the TAA, the Commissioner may challenge the taxpayer’s election and apply to the TRA to have the proceedings transferred to either the general jurisdiction of the TAA or the High Court. Similarly, under section 138O(2), the TRA itself can require the proceedings to be transferred to its general jurisdiction.

33 Section 89E(2).

34 Section 13B, Taxation Review Authorities Act 1994.

35 Section 26A(2), Taxation Review Authority Act 1994.

36 Section 26A(1).

37 Judge Barber Observations from the bench, New Zealand Institute of Chartered Accountants, 2007 Conference, page 3.

38 Section 6A(3).

39 There are actually four classifications of case in the First-tier Tribunal. In addition to “paper” and “basic”, a case can also be heard in the first instance as a “standard” or “complex” case, depending on its complexity or value. These latter two classifications are not discussed here because they are less likely to be used for very small disputes.