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Inland Revenue

Tax Policy

Chapter 6 – Role of the Commissioner and design of a new Tax Administration Act

Summary of proposals

  • Extend the care and management provision to allow the Commissioner some greater administrative flexibility in limited circumstances.
  • Allow a greater use of regulations for tax administration, including for:
    • a more tailored approach to different types of taxpayers
    • trials of tax administration processes.
  • Amend the structure of the TAA to reflect the modernised tax administration, including basing the Act around core provisions.
  • Adopt a more hierarchical approach to drafting the TAA, including a greater use of principles in specific situations when it is appropriate.

Towards a new Tax Administration Act noted that tax administration is integral to supporting the Government’s objectives for better public services, and ultimately for building a more competitive and productive economy. The discussion document also noted that the future TAA must be capable of accommodating shifting priorities and allow for a more resilient and responsive tax system to better fit New Zealand’s needs. A question is whether the current TAA fully achieves those goals and whether it is too prescriptive and inflexible. This chapter:

  • firms up the Government’s proposals to broaden the Commissioner’s care and management responsibilities
  • discusses the role of regulations in tax administration
  • considers changes to the structure of the TAA to make it more resilient and responsive to the changing environment.

As part of Inland Revenue’s Business Transformation, the Government expects numerous changes to tax administration will require legislative amendments. The Government intends to progressively rewrite the legislation, so any amendments will be made to the existing Act but will be drafted consistently with the proposed structure. The Government considers that enacting a rewritten TAA should wait until Business Transformation is complete.

Greater administrative flexibility

As discussed in Towards a new Tax Administration Act, one of the key aspects of the Commissioner’s care and management of the tax system is applying and explaining the law to taxpayers. Generally, the tax law can be interpreted consistently with the policy intent. However, in some cases the interpretation of the law using ordinary statutory interpretation principles may not accord with the policy intent. In applying those ordinary statutory interpretation principles, the courts have discussed the extent to which the purpose of a provision can override the ordinary meaning of the words through giving the relevant statutory terms a strained meaning or gap-filling.

The Commissioner’s care and management responsibility in sections 6 and 6A has been interpreted as limited to providing her with flexibility as to the allocation of her resources. This could be argued as not providing her with flexibility regarding legislative anomalies. However, flexibility around legislative anomalies can be closely related to the allocation of resources, because it can prevent Commissioner and taxpayer resources being tied up in outcomes that are inconsistent with both parties’ practice and/or expectations. As a result, the proposed extension of the Commissioner’s care and management responsibility outlined in Towards a new Tax Administration Act can be seen as a clarification of the current scope of the provision.

Towards a new Tax Administration Act suggested a clarification to the care and management provision in New Zealand to include some of the situations mentioned in R v Inland Revenue Commissioners; Ex parte Wilkinson [2005] UKHL 30. The proposal was not to incorporate the United Kingdom approach to the care and management provision (including the use of extra-statutory concessions) because it was not considered consistent with New Zealand’s tax administration system. Instead the approach was to consider what could be drawn from the criteria listed in Wilkinson, adapted for the New Zealand statutory context.

Most submitters expressed tentative support for expanding the Commissioner’s administrative flexibility under her care and management power, subject to a number of conditions. These included safeguards and clear guidelines over the exercise of the power, as well as requirements that the discretion be exercised in a consistent and taxpayer-favourable manner. Some submitters stated that they believe that this discretion already exists, but that the relevant provisions are being too narrowly interpreted. Others said that they would like Inland Revenue officials to explore further the option of greater regulation-making powers (which is discussed in the next section).

The Government considered whether it should set out specific criteria to limit the exercise of the power, or whether it should have a general ability to remedy legislative anomalies. While having a general discretion would provide the Commissioner with more flexibility, the Government considers that given the importance of maintaining the rule of law, the power should be specifically limited to set criteria. Further, the criteria would provide clear guidelines over the exercise of any discretionary power, as sought by submitters.

Following consideration of the submissions, the Government proposes that the Commissioner would be able to use her discretion in relation to:

  • Minor legislative anomalies
    Limiting this criterion to minor gaps in the legislation would mean it is intended to have a narrow application and to be used in limited situations. The criterion would be drafted narrowly but without reference to a monetary threshold, which could give rise to the standard difficulties with a bright-line test.
  • Transitory legislative anomalies
    Allowing the Commissioner to deal pragmatically with transitory issues would involve considering whether the cost of complying with the provision is disproportionate to the relevant purpose or object. If that is the case, then it may support the Commissioner exercising her discretion.
  • Cases when the relevant legislation does not adequately deal with a particular situation because a statutory rule is difficult to formulate
    This criterion would only apply in rare situations when owing to the complexity of the legislation it has not quite managed to encompass the policy in a sufficiently precise way. In most cases, a purposive approach to statutory interpretation would resolve the issue. However, when this was not the case, the Commissioner would be able to use her discretion to clarify the application of the legislation until it could be clarified by subsequent legislative amendment.
  • A long-standing established practice of both the Commissioner and taxpayers
    The discretion would be able to be used when a long-standing practice has been accepted by the Commissioner and taxpayers, which subsequently turns out to be inconsistent with the legislation (interpreted purposively). The inconsistency may arise because of a court decision or a change in an Inland Revenue interpretation. The use of the discretion would allow the desired administrative action to be taken until the law can be amended or the practice be changed to be consistent with the law.
  • Cases of unfairness at the margins
    This criterion would allow the Commissioner to deal with situations where the result under the law would create inequity to a broad group of taxpayers. The criterion is intended to reflect the Commissioner’s current obligation to protect the integrity of the tax system, which includes considering taxpayers’ perceptions of tax integrity and fairness when administering the law.[79] At the margin, this means that the care and management decision would be on small matters that could go either way but when it would be fairer to give taxpayers the benefit of the doubt.

A criterion that the discretion would be applied only in taxpayer-friendly situations has been considered. This would not be stipulated directly, since Inland Revenue may not know the precise impact for some taxpayers. Instead, the Government considers the better approach is to make the application of the care and management decision optional. Any application of the proposed discretion would not rewrite the current law, as it would still apply. This would align with the proposed Australian statutory remedial power (discussed below). This would mean that taxpayers would apply the discretion if they thought it was favourable to them. The taxpayer would still be able to apply what they consider to be the best view of the law if they did not consider that the application of the discretion would be favourable to them. The Commissioner will have to weigh the consequences of different taxpayers using different approaches in determining whether to apply her discretion to an issue. It may be that the discrepancies between the treatments for different taxpayers (and the likely fiscal impact) would make it inappropriate to apply the discretion.

The Government considers that the exercise of the discretion would be consistent with the Commissioner’s obligation to collect over time the highest net revenue practicable within the law because:

  • The exercise of the discretion would promote voluntary compliance by reducing taxpayer compliance costs for issues that are inconsistent with the policy intent.
  • The Commissioner would be able to avoid committing resources to minor or transitory anomalies, so she could better direct resources to the relevant risks.


The proposed approach can be seen in the two examples set out in Towards a new Tax Administration Act. The first example was when the Act did not allow the Commissioner to set a value for FBT purposes for something that was not a good or service, and this was contrary to the clear policy intent. The Commissioner could use the discretion to set a value for the relevant thing (such as a discount on a sale price) despite the legislation being limited to goods and services. The taxpayer could then determine whether they want to apply the market value or the value set by the Commissioner under her discretion.

The second example discussed a drafting error that prevented taxpayers from using different methods for determining their FIF income when they had different investments in the same FIF. In that hypothetical example, the Commissioner could exercise her discretion to allow taxpayers to calculate their FIF income using two different methods. It would be up to taxpayers whether they used one or two methods.

Given the potential for deviations from the rule of law, the Government considers that some specific safeguards should apply to the care and management extension, including the following:

  • Exercising the discretion consistently with policy intent
    Any exercise of the discretion would have to be consistent with the commonly-accepted policy intent of the primary legislation, and would not allow for any policy-making ability. This means, the policy intent would have to be clear.
  • Guided by the current principles
    The exercise of the discretion would be guided by the current principles in section 6A. Specifically, the exercise would have regard to —
    • the resources available to the Commissioner
    • the importance of promoting compliance, especially voluntary compliance, by all taxpayers with the Inland Revenue Acts
    • the compliance costs incurred by taxpayers.
  • Placing time limits on the use of the discretion
    Any exercise of the discretion would be time-limited and could not exceed three years. If the issue was ongoing after the expiry date, it would need to be amended in the primary legislation.
  • Requiring consultation
    Before exercising the discretion, the Commissioner would be required to undertake consultation. Depending on the issue, this could range from broad public and private sector consultation to targeted consultation.
  • Being transparent about the use of the discretion
    Assisting taxpayers to meet their tax obligations is an important part of Inland Revenue’s role in the tax system. Taxpayers must be informed if their rights and obligations are to be understood. Accordingly, the Commissioner would be required to publish any exercise of the discretion. This would ensure that the discretion would be exercised consistently.
  • Requiring the discretion to be exercised by an appropriate person
    The person authorised to exercise the discretion would have an appropriate level of expertise and would hold an appropriate office having regard to the importance of the issue.

The Commissioner’s application of the extended care and management power would be treated as being similar to an official opinion of the Commissioner and would be subject to the current protections that apply to such advice.[80]

As noted in Towards a new Tax Administration Act, the Government proposes to clarify how the care and management responsibilities relate to the Commissioner’s non-tax functions. The proposed extension to the care and management power discussed above would be made in conjunction with the clarification for the non-tax functions, so that the extended power would also apply to the Commissioner’s non-tax functions.

Making greater use of regulations

The current tax administration system in New Zealand relies heavily on primary legislation, as predominately reflected in the TAA. This means the rules are slow to adapt, and inflexible for different types of taxpayers.

Parliament has provided a broad regulation-making power in the TAA (sections 224 and 225), as well as specific provisions allowing regulations to be made.

However, there has been a general reluctance to use regulations to support primary legislation in the tax context because of the critical role of Parliament in imposing taxes. The principle that only Parliament can impose or suspend taxes is longstanding, dating back to the Bill of Rights Act 1688. However, this alone does not explain the reluctance in using regulations for tax administration, which relates to tax administration procedures rather than the imposition of taxes.

The limited use of regulations in the current tax administration system contrasts with the use of regulations in some other statutory regimes.[81] The broader use of regulations in those Acts reflects the general acceptance that delegated legislation is both necessary and desirable.

The Government considers that a greater use of regulations could assist in modernising the tax system to meet the changing expectations of the public and government. As discussed below, the Government is not seeking, however, to introduce an overriding regulation-making power (a so called Henry VIII clause) beyond the transitory regulation-making power in the Taxation (Business Tax, Exchange of Information, and Remedial Matters) Bill.

Reasons for making a greater use of regulations

There are some good reasons why a greater use should be made of regulations in the tax administration context. Overall, including all the tax administration rules in primary legislation makes the Act complex and cumbersome. Using regulations could make it less so. The process for making and amending regulations is quicker than the process for enacting or amending primary legislation, because it is less dependent on Parliamentary timetables. This means that regulations can be changed more quickly to deal with new issues.

There are also some more specific reasons for making more use of regulations:

  • They would allow for a more tailored approach to different types of taxpayers (eg, different tax administration requirements could apply to large corporates as compared to single individual taxpayers). The tailored guidance could help taxpayers to understand how specific rules apply to their situations. Alternatively, the regulations could be used to exempt certain types of taxpayers from a requirement under an administrative provision.
  • Tax administration processes could be trialled, given the relative speed for making changes. Any regulations providing for a trial would need to state a start and end date of the trial, and be clear about what the trial involved.
  • The increased use of regulations could be as part of a general move to a more hierarchical approach to drafting which could provide the legislative setting for regulations.

Any increase in the use of regulations in the tax administration system has the potential to be seen as undermining the role of Parliament. As a result, the Government seeks to strike a balance as to when regulations will be used instead of provisions in the tax Acts. At this stage it is considered appropriate to focus only on including administrative processes in regulations.

To ensure maintenance of the rule of law, regulations are subject to the Regulations Review Committee’s process, disallowance by Parliament under the Regulations (Disallowance) Act 1989 and judicial review by the courts.

Remedying legislative anomalies

As noted above, some submitters on Towards a new Tax Administration Act suggested that a broader regulation-making power could be used to remedy legislative anomalies, in addition to or replacing the proposed extended care and management proposal. The submitters cited the current proposal in Australia.

The Australian proposal is to provide the Australian Commissioner of Taxation with a statutory remedial power to allow for the timely resolution of unforeseen or unintended outcomes in the application of taxation and superannuation laws. The proposal is currently progressing through the Australian Parliament.[82]

The proposed remedial power does not allow the Australian Commissioner to directly amend the text of primary legislation or to alter or extend the purpose or object of the law. Rather it allows the Commissioner to modify the operation of a provision of a tax law where that modification is consistent with the purpose or object of the provision and any budget impact from the modification is negligible.

The proposed remedial power can only be exercised as a last resort after the other options have been considered unsuitable. Although the power may resolve some issues, in many cases it would be more appropriate for the Commissioner to seek an amendment to the primary legislation.

The Australian proposal intends to reduce the time taken to give effect to minor legislative corrections. It also allows for some minor technical corrections to be made when this might otherwise not occur. Any modifications made using the power will not apply to a taxpayer if it produces a less favourable result for them than would otherwise be the case.

The New Zealand Parliament is a fully sovereign legislature, so it has the power to delegate the authority to make regulations that amend or repeal primary legislation in limited cases. As submitters on the Taxation (Business Tax, Exchange of Information, and Remedial Matters) Bill indicated, the case for such a regulation-making power needs to be clearly made and taxpayers’ rights protected.

The proposed extension to the Commissioner’s care and management power would mean that an ability to make remedying legislative instruments is not essential. The Government also considers the Australian proposal is shaped by the relevant context, and the difficulty in getting primary legislation enacted due to the particular characteristics of that jurisdiction. The same issues do not apply in New Zealand. As a result, while some submitters supported allowing regulations to remedy legislative anomalies, the Government does not propose such a power in New Zealand.

Issues with the current structure of the Tax Administration Act

The Working Party on the Reorganisation of the Income Tax Act 1976 described the original purpose of the TAA as creating the process for collecting tax.[83] The Act was intended to regulate the relationship between the Commissioner and taxpayers. The working party noted that the way in which taxpayers perceive the fairness of the taxation system, and the efficiency and effectiveness with which it is administered are just as important as the law defining taxpayers’ liability. The working party also noted that some provisions did not fit easily into either the Income Tax Act or the proposed TAA, as they contained elements of both quantification and administration. As a result, the working party adopted a pragmatic approach to which Act these provisions should be in and allocated them accordingly.

There are several issues with the current structure of the TAA:

  • The Act is structured around a process that has undergone significant change
    Tax administration has undergone Tax administration has undergone significant change since the TAA was enacted. For example, the Act was originally structured on the basis of a Commissioner assessment model. This means the part dealing with returns is divorced from the part dealing with taxpayer self-assessment, even though the two are now part of the same process.
  • Over time the Act has become less coherent
    The Act has undergone significant amendment since it was enacted 22 years ago, including the addition of several new parts. While every effort has been made to incorporate the amendments into the existing structure, inevitably the Act has become less coherent. As tax administration continues to evolve, it will become increasingly difficult to maintain the coherence of the current Act.
  • Changes under business transformation need to be better reflected in the Act
    Proposals in this discussion document suggest changes to relationships and processes that underpin the current structure – for example, changes to the nature of secrecy/confidentiality and information collection/sharing, and changes to the role of agents and intermediaries. More broadly, the Act needs to incorporate future new processes and evolving concepts, such as the proposed accounting income method. These changes need to be coherently reflected in the legislation.

The new Act will continue to contain the procedural or administrative provisions that create the process for collecting tax, and to regulate the relationship between the Commissioner, taxpayers and tax intermediaries.

In addition, the new Act will need to have two important characteristics:

  • Reflect the five key dimensions of the modernised tax administration system
    The modernised tax administration rests on five key dimensions:
    • the role of the Commissioner,
    • the role of taxpayers,
    • the role of tax intermediaries,
    • confidentiality and
    • information collection/sharing.
      The new Act would ideally be structured in a way that better reflects those five key dimensions.
  • Responsive and resilient
    The new Act will need to be drafted in a way that is more responsive and resilient to changes in tax administration. The responsiveness can be incorporated into the Act by:
    • providing the Commissioner with greater administrative flexibility
    • reducing the reliance on primary legislation and making greater use of regulations
    • adopting a more hierarchical approach to drafting (when appropriate).

Hierarchical approach to drafting

The Government proposes a more hierarchical approach to drafting in the TAA, including a greater use of principles when it is appropriate.

The Working Party envisaged the tax legislation “would embody a hierarchy moving from general principles reflected in the core provisions part, which are developed in more detailed provisions contained in the subparts of the succeeding parts of the Act, to even greater detail ... in regulations in relation to mechanical or administrative matters."[84] While such an approach has been adopted in the Income Tax Act 2007, there are few examples of such an approach in the TAA.

The Government acknowledges there are both advantages and disadvantages with adopting a more hierarchical approach, which may include a greater use of principles.[85] The risks need to be balanced against the benefits of the approach in particular cases. Australia and the United Kingdom have adopted a more hierarchical approach (including a greater use of principles) to a much greater extent.86 The Government seeks submissions on areas where the approach may be appropriate for the new TAA.


The Government considers that the current rules around secrecy/confidentiality are complex and detailed, and are an example of when a principles-based approach to drafting could be used. There is a general principle that Inland Revenue staff must maintain secrecy and must not communicate any matter except for the purpose of carrying into effect the tax legislation. However, there are numerous detailed exceptions to that principle. It is difficult for taxpayers to understand when their information will be shared and when it will be kept confidential. . As discussed in Chapter 3, it may be possible to draft the confidentiality provisions setting out the principles when Inland Revenue is able to share or communicate the relevant information.


[79] Section 6(2)(f).

[80] See Status of Commissioner’s Advice (

[81] The Financial Markets Conduct Act 2013, the Resource Management Act 1991 and the Fisheries Act 1996 make extensive use of regulations

[82] See the Tax and Superannuation Laws Amendment (2016 Measures No. 2) Bill 2016.

[83] Second Report of the Working Party on the Reorganisation of the Income Tax Act 1976 (September 1993) 35.

[84] Second Report of the Working Party on the Reorganisation of the Income Tax Act 1976 (September 1993) 35.

[85] See Sir Ivor Richardson, Inland Revenue Tax Drafting Conference (Auckland, 27-29 November 1996) 29-30; John F Avery Jones Tax Law: rules or principles British Tax Review (1996) 580, 587; Greg Pinder The Coherent principles approach to tax law design in Australian Treasury, Treasury Economic Roundup (Autumn 2005); Daniel Lovric Principle-based drafting: experience from tax drafting The Loophole—Journal of the Commonwealth Association of Legislative Counsel (December 2010) 17.

[86] See Tax Law Reform Committee Final Report on Tax Legislation (1996) IFS and Greg Pinder The Coherent principles approach to tax law design in Australian Treasury, Treasury Economic Roundup (Autumn 2005).