R v Rowley
[2012] NZHC 1198
•30 May 2012
IN THE HIGH COURT OF NEW ZEALAND WELLINGTON REGISTRY
CRI 2010-085-006205 [2012] NZHC 1198
THE QUEEN
v
DAVID INGRAM ROWLEY BARRIE JAMES SKINNER
Hearing: 30 April, 1-4, 7-11, 14-18, 21-24, 28-29 May 2012
Counsel: D La Hood with M J Ferrier and A Instone for Crown
M T Lennard for Accused
Judgment: 30 May 2012
RESERVED JUDGMENT OF THE HON JUSTICE KÓS (s 347 discharge application)
Introduction
[1] The accused apply under s 347 of the Crimes Act 1961 for discharge of counts 101 to 110, being charges that each accused knowingly provided false information to the Inland Revenue Department (the Revenue) in their personal tax returns for the years 2006 to 2010.
[2] Argument took place on 24 and 28 May; on 29 May I dismissed the application, with reasons to follow. These are the reasons.
Submissions
[3] The application is based on a short point of law.
R v ROWLEY & SKINNER HC WN CRI 2010-085-006205 [30 May 2012]
[4] For the accused, Mr Michael Lennard submits that to show that the returns are false (or the information contained in them is false) the Crown must prove that the accused’s taxable income was different from what was returned. The return is an “assessment” for the purposes of the Tax Administration Act 1994.1 Section 109 of that Act then provides:
109 Disputable decisions deemed correct except in proceedings
Except in objection proceedings under Part 8 or a challenge under Part 8A,—
(a) no disputable decision may be disputed in a court or in any proceedings on any ground whatsoever; and
(b) every disputable decision and, where relevant, all of its particulars are deemed to be, and are to be taken as being, correct in all respects.
A “disputable decision” includes an assessment. The present prosecution is not an objection proceeding under Part 8, or a challenge under Part 8A, but it is a proceeding in a court.
[5] Therefore, Mr Lennard submits, if the Crown wishes to bring evasion charges based on falsity of returns, it needs first to dispute the assessment by going through the Part 4A process (issuing a notice of proposed adjustment) or going through one of the other statutory exceptions enabling it to raise an amended assessment without
going through the Part 4A process.2
[6] For the Crown, Mr Dale La Hood accepts that the accused’s returns are “assessments” for the purposes of the Act. Where the Revenue believes that a return is fraudulently or wilfully misleading, the Revenue may amend the assessment at any time. The time limits in ss 107 and 108 of the Act do not apply.3 The Revenue’s preferred practice therefore is to amend the assessment after the outcome of the criminal process is known.
[7] The Crown says that s 109 is not engaged in the present prosecution because it applies only in civil proceedings, citing a decision of the Court of Appeal in R v
1 Tax Administration Act 1994, ss 92 and 92A.
2 See for instance Tax Administration Act 1994, ss 89C(eb).
3 Tax Administration Act 1994, ss 108(2) and 108A(3).
Allan.4 If that is wrong, then s 109 still does not apply because the prosecution under s 143B does not “dispute the assessment” in the sense intended in s 109. As Mr La Hood put it:
The Crown is simply attempting to prove the elements of s 143B(1)(c) and (f) and a determination by the Court of the correctness of the assessment is not required in order for the Court to determine whether the elements of the offence are proved, i.e. s 109 would apply if a party was required to challenge the correctness of the assessment in order to prove or disprove the charges, but that is not the case.
[8] Mr La Hood relied on these arguments in reverse order, but it seems to me that logically the first question must be whether s 109 is applicable at all in a criminal proceeding.
Analysis
[9] The authority suggesting s 109 does not apply in a criminal case is R v Allan,5 the 2009 Court of Appeal decision referred to earlier. The judgment of the Court was given by Glazebrook J. In that case the appellate taxpayer ran an electrical equipment sales company. He imported goods from overseas and sold them on Trade Me, an internet marketplace. The company failed to file GST returns for its first two years of operation. By then its accountant estimated that $64,000 GST was owing. Three weeks after filing its overdue GST returns the company went into voluntary liquidation. Mr Allan was prosecuted for aiding and abetting the company to knowingly fail to file GST returns. A District Court jury convicted Mr Allan. The Judge sentenced him to one year’s imprisonment and ordered him to pay
reparation of $80,000.6 On appeal Mr Allan submitted that the District Court should
have conducted a disputed facts hearing under s 24(2)(b) of the Sentencing Act 2002 because the amount of GST actually payable was in dispute. The Crown contended that Mr Allan was precluded from challenging the GST payable by the company
because of s 109. It submitted that that provision applied to both civil and criminal
4 R v Allan [2009] NZCA 439 (2009) 24 NZTC 23,815.
5 Ibid.
6 The $64,000 GST plus interest.
proceedings. It may be noted, therefore, the Crown takes the opposite stance in the present proceeding.
[10] The Court of Appeal did not accept the Crown’s argument in that case. In doing so it expressly reconsidered its earlier decision in R v Smith.7 In that case the accused and his wife (trading in partnership) had been convicted of 60 counts of knowingly failed to pay PAYE tax (s 143A(1)(d)). There were other charges in relation to income tax and GST, but they can be put to one side. Over a five year period the taxes unpaid amounted to some $570,000. In the absence of returns, the
Revenue had issued a default assessment. The District Court Judge directed the jury that the Crown did not need to prove the particular amount of PAYE unpaid. It was not an element of the offences charged. But in any case the Revenue’s assessment was to be taken as correct. The Court of Appeal said she was right to do so. It cited s 109 in support. The reasoning on this aspect of the case was quite brief. Even more briefly, the Supreme Court refused leave to appeal, saying “there is no
justification for giving the words of s 109 other than their plain meaning.8 All this
was of course before the Court of Appeal’s 2009 decision in Allan.
[11] In Allan the Court of Appeal said that it would be a “very startling proposition if the existence of a valid assessment precludes any challenge in criminal proceedings”.9 In reaching that conclusion the Court of Appeal said that raising an assessment is an administrative act, and in an assessment dispute the onus lay on the taxpayer, in contrast to the position at criminal law.
[12] In Allan and Smith the assessment of tax owing was irrelevant to the elements required to be proved to make out the charges. In Allan, the disputed facts hearing (which Mr Allan insisted should have been conducted) would not involve the accused disputing the assessment (in the form of his own return). Likewise in Smith the amount of tax owing was irrelevant to proof of the charges. Those offences were
the accused had knowingly failed to pay PAYE. The point in issue was whether the
7 R v Smith [2008] NZCA 371.
8 Smith v R [2008] NZSC 110 at [4].
9 At [55].
persons undertaking work for the accused were his employees or not (he alleging that they were employed by others).
[13] In Allan the Court of Appeal said of its decision in Smith:
[57] ... The comments in the Smith decisions as to the effect of s 109 of the TAA, discussed above at [51], are therefore obiter, or at least made in a context where there was no statutory requirement of proof beyond reasonable doubt under s 24(2)(c). We note that the Crown does not suggest that the existence of an assessment was sufficient to prove the existence of employees (the issue in Smith being failure to account for PAYE). Direct evidence of that was called on behalf of the Crown at the trial.
[14] The Court of Appeal in Allan went on to say:
[59] If we are wrong and there is a conflict between s 109 of the TAA and s 24(2)(b) and (c) of the Sentencing Act, then we would have held that s 24(2)(b) and (c) requiring proof beyond reasonable doubt, being specific to the sentencing process, prevails over the general provision in s 109 of the TAA. Alternatively, we would have read down s 109 in the way Mr Sharko suggested: that it applies to civil and not criminal proceedings. As Professor Jim Evans notes in “Reading Down Statutes” in Bigwood (ed) The Statute: Making and Meaning (2004) at 123, it is legitimate to read down a statute in certain circumstances. Such reading down of statutes is not unusual. Even Scalia J in Green v Bock Laundry Machine Co (1989)
490 US 504 read in the word “criminal” in the context of the Federal Rules of Evidence regarding the impeachment of witnesses in order to avoid an absurdity.
[60] It can also be noted that a distinction is drawn in the TAA itself between civil and criminal proceedings. While the standard of proof in civil proceedings relating to the imposition of penalties is the balance of probabilities (s 149A(1)), the standard of proof in criminal proceedings relating to the imposition of penalties is beyond reasonable doubt (s 149A(3)). Similarly, the TAA draws a distinction between the onus of proof required in civil and criminal proceedings. While the onus of proof in civil proceedings rests with the taxpayer (with the exception of proceedings of proceedings relating to evasion or a similar act, or obstruction), the onus of proof in criminal proceedings rests with the Commissioner. This can be seen to demonstrate that Parliament intended to draw a distinction between civil and criminal proceedings, even in taxation matters.
[15] Section 109 has existed in essentially similar form since at least 1916.10 Prior to the Tax Administration Act 1994, s 26 of the Land and Income Tax Act 1954
read:
10 Land and Income Tax Act 1916, s 18.
Except in proceedings on objection to an assessment under Part III of this Act, no assessment made by the Commissioner shall be disputed in any Court or in any proceedings either on the ground that the person so assessed is not a taxpayer or on any other ground; and, except as aforesaid, every such assessment and all the particulars thereof shall be conclusively deemed and taken to be correct, and the liability of persons so assessed shall be determined accordingly.
[16] Then, s 27 of the Income Tax Act 1976 read:
27 Assessments deemed correct except in proceedings on objection
Except in proceedings on objection to an assessment under Part 3 of this Act, no assessment made by the Commissioner shall be disputed in any Court or in any proceedings (including proceedings before a Taxation Review Authority) either on the ground that the person so assessed is not a taxpayer or on any other ground; and, except as aforesaid, every such assessment and all the particulars thereof shall be conclusively deemed and taken to be correct, and the liability of the person so assessed shall be determined accordingly.
[17] The focus of that historical legislation was, therefore, to restrict the capacity of the taxpayer to collaterally challenge the assessment made by the Revenue in respect of the taxpayer’s tax liabilities. Nonetheless it also precluded the Commissioner disputing his own assessment.11
[18] Under both former Acts only the Commissioner made an assessment. That remained the position when the present Act was promulgated, with s 109 in its present form. But in 2001 the Taxation (Taxpayer Assessment and Miscellaneous Provisions) Act 2001 introduced the concept of self-assessment as from the 2003 tax year. Section 109 was not amended. The significance for s 109 of the introduction of taxpayer self-assessment may not have been adverted to. But as already noted, s
109 (and its predecessors) have been held also to preclude the Revenue from collaterally challenging its prior assessment. All relevant authorities referred to me were ones in a civil context. In a criminal context in Smith, properly analysed, there was no collateral challenge; in Allan it was the taxpayer challenging his own self-
assessment.
11 Macfarlane v Commissioner of Taxes [1923] NZLR 801 (CA); Kirkpatrick v Commissioner of Inland Revenue [1962] NZLR 493 (HC); Simunovich Fisheries Ltd v Commissioner of Inland Revenue [2002] 2 NZLR 516 (CA).
[19] I am not altogether convinced that s 109 is inapplicable in criminal cases altogether, as the Court of Appeal suggested tentatively in Allan, per obiter. With respect, it seems to me that the section may perhaps have broader effect, so that in certain circumstances it may preclude a collateral attack on an assessment, including a self-assessment, in criminal proceedings, and by either the Revenue or (subject to the New Zealand Bill of Rights Act considerations) an accused. That the Crown in the present case took this as its “secondary” argument suggests the prosecution harbours doubts too. I reach no final decision on that point in the absence of more detailed submissions.
[20] For present purposes the more fundamental question is whether the assessment is to have conclusive evidential effect as to any element of the charges under s 143B(1)(c).
[21] Section 143B(1)(c) provides:
143B Evasion or similar offence
(1) ...
(c) knowingly provides altered, false, incomplete, or misleading information (including tax returns and tax forms) to the Commissioner or any other person in respect of a tax law or a matter or thing relating to a tax law;
[22] The Crown must also prove the element in s 143B(1)(f) – namely that the provision of the false information was with the intent of evading an assessment or payment of tax.
[23] It is common ground that to succeed the Crown must prove five elements: (1) the accused provided information to the Revenue; (2) the information was false; (3) the accused knew the information was false; (4) the information was in respect of a tax law or matter or thing related to tax law; and (5) the accused intended to evade the assessment or payment of tax by himself under a tax law.
[24] The focus for present purposes is on element (2). It would be somewhat surprising that a provision focused on evasion could be answered by the accused saying that the assessment that he issued (and which is said by the Crown to be
based upon false information deliberately supplied) is conclusive as a matter of evidence as to the truth of the information he supplied to the Revenue. Or that it is essential that the Revenue first issued a notice of proposed adjustment (or engaged s 89C(eb)) before the Crown may charge under s 143B(1).
[25] In this respect it is significant that the normal time limits for reassessment do not apply where the Revenue considers a return fraudulently or wilfully misleading.12 I do not consider it was Parliament’s intent that s 109 offer sanctuary to a taxpayer charged under s 143B(1)(c) in the absence of a prior challenge to the resultant assessment. Given the absence of time limit for reassessment in the case of fraudulent returns, it is entirely logical and efficient that the Revenue be able to await the outcome of a prosecution before reassessing tax.
[26] In my view, s 109 applies in criminal cases (if at all) only where a party is directly attacking the prior assessment. The assessment is conclusive (at least provisionally, until reassessment) as to liability to pay a certain tax amount. But it is not conclusive as to the correctness of the information supplied to the Revenue. That information is neither the assessment, and nor is it a “particular” of it for the purposes of s 109. The Crown remains at liberty to allege in criminal proceedings that the return is the product of false information for the purposes of s 143B(1)(c), without the Revenue first disputing the assessment under the statutory procedures for doing so. As in Smith, a charge under s 143B(1)(c) does not require proof that the tax payable is a different sum from that specified in the assessment. It simply requires proof that information supplied to the Revenue was false. As to that, the assessment, whether by the Revenue or by taxpayer, is not conclusive evidence one way or the other.
Stephen Kós J
Solicitors:
Crown Solicitor, Wellington
Macalister Mazengarb, Wellington for Accused
12 Tax Administration Act 1994, s 108(2).
3