Woodgate Limited v Commissioner of Inland Revenue
[2023] NZHC 1132
•12 May 2023
IN THE HIGH COURT OF NEW ZEALAND WELLINGTON REGISTRY
I TE KŌTI MATUA O AOTEAROA TE WHANGANUI-A-TARA ROHE
CIV-2022-485-298
[2023] NZHC 1132
UNDER the Judicial Review Procedure Act 2016 IN THE MATTER
of an application for judicial review
BETWEEN
WOODGATE LIMITED
Applicant
AND
THE COMMISSIONER OF INLAND REVENUE
Respondent
Hearing: 14 November 2022 Appearances:
D M Fraundorfer, R A Rosser and S T Hartley for Applicant C D Walmsley and K Naik-Leong for Respondent
Judgment:
12 May 2023
JUDGMENT OF McQUEEN J
WOODGATE LIMITED v THE COMMISSIONER OF INLAND REVENUE [2023] NZHC 1132 [12 May 2023]
Table of Contents
Para Nos
Introduction [1]
The legal framework [5]
The GST system [6]
The disputes resolution procedure under the TAA [15]
The TAA as a code for the resolution of tax disputes [40] The Commissioner’s powers to obtain information or documents [47] Timeframe for bringing criminal charges for tax offences [51]
Factual Background [52]
Mr Fugle’s background and property developments [53]
The Property [56]
The GST Return [62]
The investigation, culminating in allegations of delay [70]
The pleaded Time Bar Decision [98]
The s 17B Notice (Spark information request) [105]
The underlying tax dispute [110]
Woodgate’s application [111]
The Commissioner’s response [120]
The issues [123]
Analysis [128]
Preliminary comment [128]
Is the Time Bar Decision amenable to review? [131]
Is the Delay Decision amenable to review? [149]
Is Woodgate’s claim of delay made out in respect of the period after
25 February 2022? [188]
If the conclusions on amenability in relation to the Delay Decision and general delay are incorrect, is Woodgate’s claim of delay
made out under the grounds of illegality and procedural unfairness? [193]
The s 17B Notice—was its issue or the refusal to disclose the
information obtained unlawful? [244]
Relief [274]
Result [275]
Costs [276]
Introduction
[1] Woodgate Limited (Woodgate), is a property development company. Mr Leslie Fugle (Mr Fugle) is the sole director and shareholder of Woodgate. Woodgate brings this proceeding to challenge decisions made by the Commissioner of Inland Revenue (the Commissioner) in respect of its Goods and Services Tax (GST) return for the period ending on 31 January 2018 (the GST Return), the audit of which remains ongoing.
[2] In brief, Woodgate says the audit has taken too long. It says there is no statutory mechanism through which it can compel the Commissioner to progress promptly through the civil dispute resolution processes contained in the Tax Administration Act 1994 (the TAA). Nor can it take any steps to progress criminal proceedings which have been threatened by the Commissioner, as the pursuit of those proceedings is a matter for the Commissioner. As a result, Woodgate says there is effectively no time limit for the resolution of the tax dispute underlying the GST Return. Woodgate seeks to escape this “Catch 22” by bringing an application for judicial review. Woodgate challenges decisions made by the Commissioner on the grounds of procedural unfairness and breach of natural justice, and seeks declaratory relief.
[3] The Commissioner opposes Woodgate’s application. The Commissioner says that the application for judicial review is premature, as the audit of the GST Return remains ongoing. In the alternative, the Commissioner says that two of the decisions challenged by Woodgate are not amenable to review and that he has acted lawfully in all respects. He says that the application should be dismissed, and declaratory relief declined.
[4] For the reasons below, I conclude that Woodgate’s application for judicial review should be dismissed.
The legal framework
[5] It is helpful at the outset to traverse in some detail the regime created by the Goods and Services Tax Act 1985 (the GST Act) and the provisions contained in the
TAA for the resolution of tax disputes, including the Commissioner’s powers to obtain information or documents.
The GST system
[6] The GST Act provides for GST as a 15 per cent tax on the supply of most goods and services in New Zealand, where they are supplied in the course of a taxable activity.1 A person must register with the Inland Revenue Department if they make taxable supplies in excess of $60,000 in a 12-month period or their prices include GST.2
[7] When goods or services are supplied by a person who is registered for GST purposes (the taxpayer), GST is charged to their customers, and the taxpayer collects that GST (this is called input tax). When that taxpayer purchases goods or services, they also pay GST (this is called output tax). If input tax exceeds output tax, a taxpayer pays the excess to the Commissioner. If output tax exceeds input tax, the taxpayer receives a refund from the Commissioner. This recognises that GST is a consumption tax, and so taxpayers who consume more than they supply are required to pay the difference.
[8] Some goods and services do not have GST added to them. This includes supply by a person who is not registered for GST or supplies which are specifically exempt under provisions of the GST Act. Additionally, some goods and services are ‘zero- rated’, meaning that GST is charged at the rate of zero per cent, but a person can claim GST on their expenses related to those zero-rated supplies. For example, goods and services which are exported are generally zero-rated.
[9] Persons who are registered for GST purposes are required to file regular returns, but can elect a monthly, two-monthly, or six-monthly filing period, a period which is referred to as a ‘taxable period’ or ‘filing frequency’.3 GST returns are
1 Goods and Services Tax Act 1985, s 8(1). The term ‘supply’ is defined in s 5 of the GST Act. The term ‘taxable activity’ is defined in s 6 of the GST Act.
2 Sections 51 and 51B.
3 Goods and Services Tax Act 1985, s 15(1).
required to be filed by the taxpayer the 28th of the month following the end of the taxable period (the return period).4
[10] The GST Act proposes, in the first instance, a ‘self-assessment’ regime. An ‘assessment’ for tax purposes includes, relevantly:5
(a)an assessment of tax made under a tax law by a taxpayer or by the Commissioner;
(b)an assessment of a refund due under the GST Act; and
(c)an amendment by the Commissioner of an assessment.
[11] Section 46 of the GST Act addresses the circumstances in which the Commissioner may withhold payment of a GST refund following the provision of a return by a taxpayer (the taxpayer’s self-assessment of GST for a taxable period.). Section 46 states:
Commissioner’s right to withhold payments
(1)Subject to this section, if the Commissioner is required to refund an amount to a registered person under section 19C(8) or section 20(5), the Commissioner shall refund the amount—
(a)except when paragraph (b) applies, not later than 15 working days following the day on which the registered person’s return was received by the Commissioner; or
(b)the day after the working day on which the Commissioner—
(i)determines the amount is refundable, after first having—
(A)investigated the circumstances of the return in accordance with subsection (2); or
(B)reviewed the information requested in accordance with subsection (2); and
(ii)is satisfied that the registered person has complied with the person’s tax obligations.
4 Section 16(2).
5 Tax Administration Act 1994, s 3(1).
(1B) For the purposes of subsections (1)(a), (4)(a), and (5), for a non- resident person who is registered under section 54B, the reference to a 15-day period is treated as a reference to a 90-day period following the day on which the registered person’s return was received by the Commissioner.
(2)If the Commissioner is not satisfied with a return made by a registered person, the Commissioner—
(a)may investigate the circumstances of the return:
(b)may request the registered person to provide further information concerning the return.
(3)If a registered person fails to provide a return for any taxable period as required by this Act, the Commissioner may withhold payment—
(a)of any tax otherwise refundable under this Act or the Tax Administration Act 1994; or
(b)of any interest payable under Part 7 of the Tax Administration Act 1994—
until the registered person complies with the requirement.
(4)The Commissioner must give a request for information concerning a return under subsection (2)—
(a)within a period of 15 working days following the day on which the return is received by the Commissioner (in the case of an initial request for information); and
(b)within a period of 15 working days following the date of receipt of any information previously requested by the Commissioner (for subsequent requests for information).
The Commissioner must notify the registered person—
(a)of the Commissioner’s intention to investigate the circumstances of the return under subsection (2); and
(b)of the Commissioner’s intention to withhold payment under subsection (3)—
within 15 working days following the day on which the return is received by the Commissioner.
(6)If, but for this subsection, a registered person would be entitled to an amount as a refund under section 19C(8) or 20(5) or 45 or 78B(5)(c) or under the Tax Administration Act 1994, or as a payment of interest under Part 7 of the Tax Administration Act 1994, the Commissioner may apply the amount, in accordance with a request under section 173T of the Tax Administration Act 1994 or in the absence of a request in such order or manner as the Commissioner may determine, in payment of—
(a)tax that is payable by the person:
(b)an amount that is payable by the person under another Inland Revenue Act.
(7)If, but for this subsection, a person who is a specified agent of an incapacitated person, as those terms are defined in section 58(1), would be allowed an amount as a deduction under section 20(3) by virtue of section 58(1C), the Commissioner may apply the amount in payment of—
(a)tax that is payable by the incapacitated person:
(b)an amount that is payable by the incapacitated person under another Inland Revenue Act.
[12] Section 46 seeks to balance the policy considerations of generally promoting the prompt payment of refunds while also avoiding abuse of the tax system, by permitting the Commissioner to withhold payment in cases where he considers investigation is required.6 Pursuant to s 46(2), if the Commissioner is not satisfied with a return made by a taxpayer, he may investigate the circumstances of the return, and may also request the provision of further information concerning the return.7 The Commissioner may withhold a refund claimed in a GST return in the interim, but must notify the claimant of the intention to investigate the circumstances of the return within 15 working days following the day on which the return is received by the Commissioner.8 Section 46 does not contain any reference to the time in which a determination must be made following investigation. Rather, any refund is required to be paid on the day after the working day on which the Commissioner determines the amount to be refundable and is satisfied that the taxpayer has complied with their tax obligations.9
[13] Section 108A of the TAA sets out the timeframe in which the Commissioner may amend a GST assessment to increase the amount assessed:
6 Contract Pacific Ltd v Commissioner of Inland Revenue [2010] NZSC 136, [2011] 1 NZLR 302 at [22] and [23].
7 In Contract Pacific, above 6, at [26], the Supreme Court observed that while s 46(2) reads as an empowering provision authorising investigations and requests for information, in fact those powers are found in the Tax Administration Act 1994, in particular in ss 16–19. Thus s 46(2) “merely describes the processes which, if embarked on by the Commissioner in a timely way … displace what would otherwise be the default obligation under s 46(1)(a) to pay a claimed refund”.
8 Goods and Services Tax Act 1985, ss 46(1), and 46(5).
9 Section 46(1)(b); see also Contract Pacific Ltd v Commissioner of Inland Revenue, above n 6, at [30].
108A Time bar for amending GST assessment
(1)Subject to this section and section 108B, if a taxpayer provides a GST tax return for a GST return period and an assessment has been made, the Commissioner may not amend the assessment to increase the amount assessed if 4 years have passed from the end of the GST return period in which the tax return was provided.
(2)[Repealed]
(3)The Commissioner may, at any time, amend an assessment to increase the amount of the assessment if the Commissioner considers that the person assessed has knowingly or fraudulently failed to disclose to the Commissioner all of the material facts that are necessary for determining the amount of GST payable for a GST return period.
(3B) A period equal to the number of days in the period described in this subsection is added to the 4 years under subsection (1), if a taxpayer successfully challenges a Commissioner’s refusal under section 89K(4). The relevant period—
(a)starts on the day of the refusal:
(b)finishes on the day on which that challenge is finally judged successful by the relevant Taxation Review Authority or court, or the day on which the Commissioner concedes.
(4)This section overrides every other provision of this Act, and any other rule or law, that limits the Commissioner’s right to amend GST assessments.
[14] Therefore, in the ordinary course of events, the Commissioner has four years from the end of a GST return period in which a tax return was filed to re-assess a taxpayer’s self-assessment of their GST liability with the effect of increasing the amount assessed, unless the Commissioner considers the person has knowingly or fraudulently failed to disclose all of the material facts that are necessary for determining the amount of GST payable for a GST return period.
The disputes resolution procedure under the TAA
[15] The TAA provides a regime for the resolution of tax disputes, including in relation to GST matters. Its purpose is to “re-enact the administrative provisions contained in the Income Tax Act 1976 and the Inland Revenue Department Act 1974 in a reorganised form”, without changing the interpretation or effect of the provisions
carried over.10 Taxpayers are able to contest a “disputable decision” by the Commissioner following the steps as contemplated by the TAA.11
[16] Part 4A of the TAA provides for pre-litigation disputes procedures, while pt 8A provides for challenges, which proceed through a de novo litigation process between the Commissioner and the taxpayer in either the Tax Review Authority or the High Court.12
[17] Section 89A of the TAA provides that the purpose of pt 4A of the TAA is to establish procedures that will:
(a)improve the accuracy of disputable decisions made by the Commissioner under certain of the Inland Revenue Acts; and
(b)reduce the likelihood of disputes arising between the Commissioner and taxpayers by encouraging open and full communication—
(i)to the Commissioner, of all information necessary for making accurate disputable decisions; and
(ii)to the taxpayers, of the basis for disputable decisions to be made by the Commissioner; and
(c)promote the early identification of the basis for any dispute concerning a disputable decision; and
(d)promote the prompt and efficient resolution of any dispute concerning a disputable decision by requiring the issues and evidence to be considered by the Commissioner and a disputant before the disputant commences proceedings.
[18] The disputes process contemplated by pt 4A of the TAA may be followed in circumstances in which the Commissioner wishes to dispute a taxpayer’s self- assessment of tax in a GST return.13 Some steps in the process established by the TAA are required to be taken within a specific timeframe, while others are not.
10 Tax Administration Act 1994, ss 2(1) and 2(2).
11 Sections 3(1) and 109. See also Allen v Commissioner of Inland Revenue [2006] NZSC 19, [2006] 3 NZLR 1 at [8].
12 See Allen v Commissioner of Inland Revenue [2006] NZSC 19, [2006] 3 NZLR 1 at [8]–[9]; and Tannadyce Investments Limited v Commissioner of Inland Revenue [2011] NZSC 158, [2012] 2 NZLR 153 at [48]–[51] per Blanchard, Tipping and Gault JJ.
13 This discussion focuses on the process where the Commissioner has concerns about the taxpayer’s return as that is the position in the present case. A comparable process exists when it is the taxpayer who has concerns about the Commissioner’s assessment.
[19] The Commissioner has in practice added steps to the disputes procedure as a matter of administration and policy which are not included in the TAA, and in respect of which there is no statutory direction. To this end, the Commissioner has published a Standard Practice Statement (SPS) Disputes resolution process commenced by the Commissioner of Inland Revenue.14 This SPS states in its introduction:
The disputes resolution process is designed to ensure that there is a full and frank communication between the parties in a structured way within strict time limits for the legislated phases of the process.
The disputes resolution process is designed to encourage an “all cards on the table” approach and resolution of issues without the need for litigation.
[20] I now set out a broad overview of the disputes procedure as it applies where the Commissioner has concerns about a GST return.
[21] If the Commissioner is not satisfied that a taxpayer has complied with their tax obligations or that their self-assessment contained in a GST return is correct, the provisions of pt 4A of the TAA provide a process for the Commissioner to dispute the return, typically following the exercise of the investigatory powers contained in s 46.
[22] The entry point into pt 4A of the TAA is the Commissioner’s issuing of a ‘Notice of Proposed Adjustment’ (NOPA). The Commissioner may issue one or more NOPAs in respect of a tax return or an assessment.15 A NOPA may be issued in respect of a GST return, because a GST Return is both a tax return and an assessment. Subject to a list of exceptions contained in s 89C of the TAA, a NOPA is required to be issued prior to the Commissioner making an assessment (effectively a re-assessment of the assessment made by the taxpayer in their GST Return). A NOPA itself is not an assessment.16
14 Disputes resolution process commenced by the Commissioner of Inland Revenue (SPS 16/05), 10 October 2016. This SPS has been replaced as of 24 February 2023 by Disputes Process (SPS 23/01), 24 February 2023. I note however, that an assessment made by the Commissioner is not invalidated by reason of the assessment being made wholly or partially in compliance with a current policy or practise approved by the Commissioner. See Tax Administration Act 1994, s 114(b)(ii).
15 Tax Administration Act 1994, s 89B(1).
16 Disputes Process (SPS 23/01), 24 February 2023 at [36].
[23] Pursuant to s 89F of the TAA, a NOPA issued by the Commissioner must contain sufficient detail of certain matters to identify the issues arising between the Commissioner and the taxpayer, including:
(a)identification of the adjustment or adjustments proposed to be made to the assessment;
(b)the provision of a concise statement of the key facts and the law in sufficient detail to advise the taxpayer of the grounds for the Commissioner’s proposed adjustment or adjustments; and
(c)a statement of how the law applies to the facts.
[24] The sufficient detail required for a NOPA is obtained through the investigation which proceeds following the Commissioner notifying the taxpayer of their intention to investigate a GST return within the requisite 15 working days required by s 46(5) of the GST Act. However, there is no requirement contained in the TAA for the Commissioner to issue a NOPA within a certain time. The Commissioner either:
(a)investigates until they become satisfied in the terms of s 46(1)(b), and releases the refund claimed; or
(b)investigates until the time bar in s 108A of the TAA comes into effect, and simply accepts the taxpayer’s self-assessment, then releasing the refund claimed; or
(c)investigates indeterminately, on the basis that the taxpayer has knowingly or fraudulently failed to disclose material facts, forming an opinion that an exception to the time bar arises, as contemplated by s 108A(3).
[25] The taxpayer, having received a NOPA, can decide to accept or reject the NOPA. If the taxpayer accepts the NOPA, then the dispute is at an end, and the Commissioner makes a new assessment on that basis. If the taxpayer rejects the NOPA, they must do so pursuant to s 86G of the TAA.
[26] Section 86G requires that the taxpayer notify the Commissioner that the NOPA is rejected by issuing a ‘response notice’ (also known as a ‘Notice of Response’ (NOR)). A NOR must be issued within two months of a NOPA being issued.17 Pursuant to s 89G(2), a NOR must state concisely:
(a)the facts or legal arguments in the NOPA that the issuer of the notice of response considers are wrong; and
(b)why the issuer of the NOR considers those facts or legal arguments to be wrong; and
(c)any facts and legal arguments relied on by the issuer of the NOR; and
(d)how the legal arguments apply to the facts; and
(e)the quantitative adjustments to any figure referred to in the NOPA that result from the facts and legal arguments relied on by the issuer of the NOR.
[27] If a taxpayer does not issue a NOR within the two month response period, they are deemed to accept the proposed adjustment and s 89I applies, meaning that the taxpayer cannot challenge the NOPA. However, there are some exceptions to the requirement for the taxpayer to comply with the statutory response period.18
[28] Once a NOR is issued, the Commissioner’s policy/administrative approach has previously been to “take reasonable efforts to advise the taxpayer or their tax agent within one month after receiving the NOR whether it is being considered or has been accepted, rejected in full or in part”19. However, the Commissioner is under no legal obligation to notify the taxpayer within that timeframe, and the current SPS 23/01 does not contain any indication he will do so.20
17 Tax Administration Act 1994, s 89AB(2).
18 See Tax Administration Act 1994, s 89K. This is discussed further below.
19 Disputes resolution process commenced by the Commissioner of Inland Revenue (SPS11/05), 13 October 2011 at [129].
20 Disputes Process (SPS 23/01), 24 February 2023 at [113]–[153].
[29] Following the issuing of a NOPA and a NOR, the next step is the ‘conference phase’. The conference phase is not included as a required step in the TAA, and therefore there is no obligation for it to occur. However, the Commissioner’s policy is to offer to hold a conference to attempt to resolve the dispute.21 The Commissioner’s policy estimates that the conference phase is to be completed within three months.22 However, again, as the conference phase is not included within the TAA, there is no legal obligation for it to occur within this timeframe. The Commissioner will not progress a dispute until they consider this phase complete, usually by agreement between the parties.23 However, the parties can agree to opt out of the disputes process at this stage, if certain criteria are met.24
[30] The facilitator of the conference phase decides and/or suggests when the conference phase has ended, but this conclusion is typically formally recorded in an agreement between the Commissioner and the taxpayer. The reasons for the conclusion of the conference phase are varied, but often include:25
(a)the facilitator considers that all material information has been exchanged, all technical tax issues have been fully discussed, and the dispute has not yet been resolved;
(b)the taxpayer stops contacting IRD;
(c)no exchange of information has occurred;
(d)the parties disagree with each other and are keen to progress to the next phase; and/or
(e)the taxpayer appears to be delaying so as to run into the four year time bar.
21 At [154]–[156].
22 At [171].
23 At [191].
24 At [196]–[201], and [323].
25 Disputes Process (SPS 23/01), 24 February 2023 at [189]–[190].
[31] Once the conference phase has ended, the last formal part of the disputes process is the exchange of Statements of Positions (SOPs) pursuant to s 89M of the TAA. Where the Commissioner issued a NOPA first, they must also issue their SOP first, accompanied by a ‘disclosure notice’. The Commissioner’s SOP must with sufficient detail to fairly advise the taxpayer:26
(a)give an outline of the facts on which the Commissioner intends to rely; and
(b)give an outline of the evidence on which the Commissioner intends to rely; and
(c)give an outline of the issues that the Commissioner considers will arise; and
(d)specify the propositions of law on which the Commissioner intends to rely.
[32] The SOP phase is important, as if and when the dispute enters the challenge process provided for by pt 8A of the TAA, the Commissioner and the taxpayer: “may raise in the challenge only the issues and the propositions of law that are disclosed in the Commissioner’s and disputant’s statements of position.”27 Therefore, an “all cards on the table” approach to the SOP phase is required. The Commissioner is also required to inform the taxpayer of the rules of evidence that apply to the challenge process contained in pt 8A of the TAA.28
[33] This means also that although there is an investigation phase that appears to come to an end at the time a NOPA is issued, the level of detail required for an SOP/disclosure notice may result in a second (and potentially longer) investigation phase prior to the issue of a SOP. There is no timeframe within which the Commissioner is required to provide their SOP following the end of the conference
26 Tax Administration Act 1994, s 89M(4).
27 Tax Administration Act 1994, s 138G.
28 Section 89M(3).
phase, meaning that the Commissioner is essentially at leisure to continue to investigate, subject to the operation of the time bar.29
[34] The taxpayer then issues their SOP in response, and must do so within the response period of two months, or they are deemed to have accepted the Commissioner’s NOPA.30 If certain criteria are met, the taxpayer may apply to the High Court for more time to reply.31 As with the Commissioner’s SOP, the taxpayer’s SOP must also provide sufficient detail to fairly advise the Commissioner of the taxpayer’s position.32
[35] When the Commissioner receives a taxpayer’s SOP, the Commissioner has a further two months to respond with any additional evidence, information or arguments he considers relevant, and may apply to the High Court for more time if certain criteria are met.33
[36] Failing resolution, the next stage is for the dispute to be referred to adjudication by the Commissioner’s Tax Counsel Office34 (formerly the Disputes Review Unit).35 If the Commissioner succeeds, a new assessment is made.
[37] The taxpayer may then bring a challenge, as contemplated under pt 8A of the TAA. The challenge process is instigated by the taxpayer filing proceedings either in the Taxation Review Authority or the High Court. Those bodies may consider the assessment and the dispute de novo, making any assessment the Commissioner was empowered to make, at the time it was made.36 It is in that forum that a taxpayer may challenge the correctness or validity of the Commissioner’s assessment, and where disputable decisions are open to be invalidated or corrected.
29 See Disputes Process (SPS 23/01), 24 February 2023 at [212].
30 Tax Administration Act 1994, ss 89M(5), and 89AB(5). See also s 89M(7).
31 Section 89M(11).
32 Section 89M(6).
33 Tax Administration Act 1994, s 89M(8) and 89M(10).
34 Disputes Process (SPS 23/01), 24 February 2023 at [252].
35 See Disputes resolution process commenced by the Commissioner of Inland Revenue (SPS11/05), 13 October 2011 at [252].
36 Tax Administration Act 1994, s 138P(1).
[38] There are also, however, limitations on the matters that may be challenged through the process set out in pt 8A. Pursuant to s 138E of the TAA, certain rights of challenge are not conferred by the pt 8A process. This includes (but is not limited to):
(a)a decision of the Commissioner under a tax law to enlarge or extend the time for giving notice, making an application, furnishing a tax return, or doing any other act, matter, or thing;
(b)decisions of the Minister under a tax law, or an act, matter, or thing done or omitted by the Minister under a tax law; and
(c)matters which by certain provisions in the Income Tax Act 2007, the TAA, the KiwiSaver Act 2006, and the GST Act, are left to the discretion, judgment, opinion, approval, consent, or determination of the Commissioner.
[39] As discussed below, this has an impact on the ability of a taxpayer entering the challenge procedure to challenge certain decisions or processes adopted by the Commissioner throughout the disputes process.
The TAA as a code for the resolution of tax disputes
[40] A ‘disputable decision’ is defined in s 3 of the TAA and includes (as relevant for present purposes), an assessment, and a decision of the Commissioner under a tax law, except for a decision:
(a)that cannot be the subject of an objection under pt 8;
(b)that cannot be challenged under pt 8A;
(c)to issue a Commissioner’s NOPA under s 89B; or
(d)to issue a Commissioner’s disclosure notice or SOP under s 89M.
[41]Also of importance are ss 109 and 114 of the TAA. Section 109 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.
[42]Section 114 provides:
114 Validity of assessments
An assessment made by the Commissioner is not invalidated—
(a)through a failure to comply with a provision of this Act or another Inland Revenue Act; or
(b)because the assessment is made wholly or partially in compliance with—
(i)a direction or recommendation made by an authorised officer on matters relating to the assessment:
(ii)a current policy or practice approved by the Commissioner that is applicable to matters relating to the assessment.
[43]The effect of these provisions is that:37
…no assessment or other disputable decision, as defined, may be disputed in any court or in any proceedings on any ground whatsoever, except in proceedings taken under the Act. It is clear that by means of s 109 Parliament was concerned to ensure that disputes and challenges capable of being brought under the statutory procedures were brought in that way and were not made the subject of any other form of proceeding in a court or otherwise.
[44] This means that a taxpayer is unable to commence proceedings challenging a disputable decision by the Commissioner other than as provided for by the TAA. This inevitably affects applications for judicial review. On that point, as counsel correctly identified, the Supreme Court’s decision in Tannadyce is the leading case, which
37 Tannadyce Investments Limited v Commissioner of Inland Revenue [2011] NZSC 158, [2012] 2 NZLR 153 at [53] per Blanchard, Tipping and Gault JJ.
mandates an “extremely narrow approach” to judicial review in respect of tax disputes.38
[45] In Tannadyce, Tannadyce Investment Limited sought judicial review of tax assessments made by the Commissioner. The Supreme Court was required to consider the relationship of s 109 of the TAA to the availability of judicial review. The majority considered that the effect of s 109 was to render judicial review unavailable to a taxpayer for the challenging of assessments or disputable decisions but that s 109 did not prevent taxpayers from accessing the High Court, given the broad terms of pt 8A.39
[46]The majority went on to say that:40
But despite the comprehensive scope of the challenge procedure and the powers of hearing authorities, it is necessary to recognise the possibility that there may be rare cases in which it is not practically possible for a taxpayer to challenge an assessment under Part 8A. Indeed Tannadyce claims that the present is such a case. If that is so, proceedings for judicial review cannot be regarded as precluded by s 109 because the premise on which that section is framed, namely the ability of hearing authorities to consider any challenge, on whatever ground, is not present.
We should add, for completeness, that judicial review will also be available when what is in issue is not the legality, correctness or validity of an assessment but some suggested flaw in the statutory process that needs to be addressed outside the statutory regime, because it is not provided for within it. An example might be the case of a well-founded concern that a particular Taxation Review Authority should, for whatever reason, be restrained from considering a challenge; for example because of alleged bias on the part of the Authority. In such a case it would not be the disputable decision that was being disputed in a court but rather the legality of the process by which the challenge to that decision is to be determined under pt 8A. This is a different matter from a challenge to the legality of the process which led up to making of the disputable decision. That process and any challenge to it directly puts in issue the disputable decision. Hence the challenge to that decision or its antecedents must follow the statutory procedure.
It is important to be clear that the fact that judicial review is very largely excluded in favour of the statutory processes by s 109 does not in any way diminish the general importance and availability of judicial review for examining the legality of conduct and decisions that fall within its compass. The exclusion of judicial review is a product of the text and purpose of s 109 in its particular statutory setting.
38 Mark Keating Tax Disputes in New Zealand: A Practical Guide (CCH New Zealand, Auckland, 2012) at [1502].
39 Tannadyce, above n 37, at [57] per Blanchard, Tipping and Gault JJ.
40 At [58]–[61] per Blanchard, Tipping and Gault JJ.
In summary therefore we would hold that disputable decisions (which include assessments) may not be challenged by way of judicial review unless the taxpayer cannot practically invoke the statutory procedure. Cases of that kind are likely to be extremely rare.
The Commissioner’s powers to obtain information or documents
[47] Section 17B of the TAA provides the Commissioner with powers to require information or the production of documents when the Commissioner considers it necessary or relevant. Section 17B states:
17BCommissioner may require information or production of documents
Requiring information or production of documents
(1)A person must, when notified by the Commissioner in an information demand, provide any information that the Commissioner considers necessary or relevant for any purpose relating to—
(a)the administration or enforcement of an Inland Revenue Act:
(b)the administration or enforcement of any matter arising from, or connected with, a function lawfully conferred on the Commissioner.
Documents included
(2)In this section and in sections 17 and 17G to 17H, a requirement to provide information includes a requirement to produce a document.
Requirements
(3)The Commissioner may require that information provided under this section be—
(a)verified by statutory declaration or otherwise:
(b)provided to a particular office of the Commissioner:
(c)provided in a manner acceptable to the Commissioner.
Persons included
(4)For the purposes of this section and section 17L, a person includes—
(a)an officer employed in, or in connection with, a department of the government or a public authority:
(b)any other public officer.
Particular requirements for information demands and inquiries
(5)Sections 17F, 17G, and 17H to 17K set out some particular requirements for information demands and inquiries.
[48] Section 17B was inserted into the TAA by the Taxation (Annual Rates for 2018–19, Modernising Tax Administration, and Remedial Matters) Act 2019. Previously, the Commissioner’s information gathering power was contained in s 17(1) of the TAA, which read:
Every person (including any officer employed in or in connection with any department of the government or by any public authority, and any other public officer) shall, when required by the Commissioner, furnish any information in a manner acceptable to the Commissioner, and produce for inspection any documents which the Commissioner considers necessary or relevant for any purpose relating to the administration or enforcement of any of the Inland Revenue Acts or for any purpose relating to the administration or enforcement of any matter arising from or connected with any other function lawfully conferred on the Commissioner.
[49] It is clear from the former s 17(1) that the current s 17B is not substantially different in effect. Additionally, the Taxation (Annual Rates for 2018–19, Modernising Tax Administration, and Remedial Matters) Act 2019 does not appear to have been intended to change the nature of the Commissioner’s information gathering powers, but rather to generally (as an omnibus bill), simplify, improve, and modernise the tax system.41
[50] Commentary on the former s 17(1) describes the Commissioner’s powers as “very wide in scope”, with little restriction on the kinds of information that are able to be requested.42 The Commissioner can also require the provision of information in writing where no written records are available, and the information is simply a person’s recollection of events.43 That information must be necessary or relevant. However, generally the courts have been willing to grant the Commissioner latitude regarding what information is requested and how it is described, and the
41 See (12 March 2019) 736 NZPD 9900.
42 Mark Keating Tax Disputes in New Zealand: A Practical Guide (CCH New Zealand, Auckland, 2012) at [304].
43 Commissioner of Inland Revenue v New Zealand Stock Exchange [1990] 3 NZLR 333, (1990) 12 NZTC 7,259 (CA); and New Zealand Stock Exchange v Commissioner of Inland Revenue [1992] 3 NZLR 1, (1991) 13 NZTC 8,147 (PC).
Commissioner need not describe in a request why the information is deemed to be necessary or relevant.44
Timeframe for bringing criminal charges for tax offences
[51] Finally, it is relevant to note that s 150A of the TAA provides that a charging document may be filed at any time within 10 years after the termination of the year in which the offence was committed for offences contained in the TAA, the GST Act, and the Income Tax Act 2007.
Factual Background
[52] The parties have filed affidavit evidence in relation to the extensive dealings between Mr Fugle, Woodgate and other entities arguably associated with Mr Fugle. There have been many communications between Woodgate, Mr Fugle and their legal advisers on the one hand, and the Commissioner, on the other. I consider that I can appropriately summarise key events as follows, without commenting on every individual communication.
Mr Fugle’s background and property developments
[53] Records from the Companies Office show that Mr Fugle has been a director and/or a shareholder of at least 28 companies since the late 1980s. A number of these companies have held the title of land relevant to this proceeding, located in Palmerston North. That land has been progressively sub-divided over time. The process generally has been that residential sections would be sold to third parties, and the residual land transferred to another entity controlled by Mr Fugle. The rationale behind this process appears to be to avoid liability for the entity which has most recently sold residential sections, leaving the company holding the residual land to further develop it, unimpeded by prior liabilities or commitments.
[54] Mr Fugle has had previous disputes with the Commissioner, including a protracted dispute relating to Mr Fugle’s 2005 income tax return and a debt assignment
44 Mark Keating Tax Disputes in New Zealand: A Practical Guide (CCH New Zealand, Auckland, 2012) at [305]; citing Schwass and Robertson v Mackay (1983) 6 NZTC 61 (HC).
from one of his companies, Bathos Properties Limited, which progressed through the statutory dispute resolution process, the Taxation Review Authority, the High Court,45 and the Court of Appeal.46 The Commissioner was ultimately unsuccessful on appeal.
[55] Mr Fugle has also been involved in other litigation in the High Court and Court of Appeal, concerning his directorship of Vey Group Limited.47 From Mr Fugle’s perspective, this background raises a concern in that previous disputes between him and the Commissioner affect the manner in which the Commissioner has dealt and/or is dealing with Woodgate’s GST Return. From the Commissioner’s perspective, the background means that he is determined to consider the GST Return against a full understanding of Mr Fugle’s past activities.
The Property
[56] The GST Return claims an input tax credit relating to the purchase of a property located at 153 Pacific Drive, Fitzherbert, Palmerston North (the Property). For present purposes it is not necessary to set out all of the various entities that have held the Property over time. It is enough to say that, as part of the land at Pacific Drive, Palmerston North, the Property has been transferred many times between entities controlled by Mr Fugle, and that its legal description has also changed many times as a result of the subdivision of the land.
[57] Relevantly for present purposes, on 30 November 2011, Farm Holdings (4) Limited (which was then known as Aokautere Land Company Limited) entered an agreement for sale and purchase of the Property for $6,325,000.000 inclusive of GST if any. The transfer of the Property occurred on 1 December 2011. The directors of that company at that time were Mr Wayne Fugle (Mr Fugle’s brother) and Mr Richard Nichols, although Mr Fugle had previously been a director at the time of its incorporation.
45 Fugle v Commissioner of Inland Revenue [2016] NZHC 1997, (2016) 27 NZTC 22-069.
46 Commissioner of Inland Revenue v Fugle [2017] NZCA 230, (2017) 28 NZTC 23-017.
47 Vance & Millard v Vey & Fugle [2019] NZHC 1676, [2020] NZCCLR 5; and Vey Group Limited v Vance [2020] NZCA 232, [2021] 2 NZLR 541.
[58] The Property was purchased at that time from Mr Christopher Lundin (Mr Lundin), the director of an American-based company called CTS Investments LLC (CTS), which also provided finance for the completion of the purchase. A registered mortgage was given to CTS to secure the finance provided.
[59] Farm Holdings (4) Limited went into voluntary liquidation pursuant to s 241(2)(a) of the Companies Act 1993 on 25 May 2016 and was removed from the Companies Register in September 2017. During the process of the liquidation, the liquidators disclaimed the Property as an onerous asset under s 269 of the Companies Act 1993. Disclaimer has the effect of terminating a company’s rights, interests, and liabilities in relation to the property disclaimed, however, the rights and liabilities of third parties are not affected.48
[60] Following on from the disclaimer of the Property, in November 2017, CTS successfully applied to the High Court for the Property to be vested in it in reliance on its registered mortgage. CTS remains the registered owner of the Property, despite having subsequently sold it to Woodgate.
[61] Prior to the voluntary liquidation of Farm Holdings (4) Limited, it was engaged in litigation with the Horizons Regional Council (then the Manawatu-Wanganui Regional Council) regarding its compliance with Resource Management Act 1991 obligations. This litigation culminated in the filing of charges against Farm Holdings (4) Limited, Mr Fugle, and Pacific Farms Development Limited (another company controlled by Mr Fugle). These proceedings are not relevant for present purposes, although I note that there are many examples of litigation in the Environment Court involving Mr Fugle, his related entities, and regional or local authorities.49 It appears to me to be an available inference from the evidence that the
48 Companies Act 1999, s 269(3). I note also that the definition of onerous property in s 269(2) includes “property of the company that is unsaleable, or not readily saleable, or that may give rise to a liability to pay money or perform an onerous act”.
49 See for example: Fugle v Manawatu-Wanganui Regional Council [2015] NZEnvC 155; Re Palmerston North City Council [2022] NZEnvC 214; Aokautere Land Holdings Ltd v Palmerston North City Council [2020] NZHC 1110, (2020) 21 ELRNZ 823; Aokautere Land Holdings Ltd v Manawatu-Wanganui Regional Council [2021] NZEnvC 199, (2021) 23 ELRNZ 522; Manawatu- Wanganui Regional Council v Fugle [2013] NZEnvC 19; Manawatu-Wanganui Regional Council v Fugle [2012] NZEnvC 2; and Manawatu-Wanganui Regional Council v Fugle [2012] NZEnvC 250.
voluntary liquidation of Farm Holdings (4) Limited, and the subsequent disclaimer of the Property, were undertaken in order to avoid liability stemming from the litigation with Horizons Regional Council, and/or to defeat the interests of creditors.
The GST Return
[62] It was on 13 June 2016 that Mr Fugle first contacted the Commissioner in relation to the tax implications of a further sale and buy back of the Property. This was a short time after the voluntary liquidation of Farm Holdings (4) Limited, but prior to the liquidator’s disclaimer of the Property as onerous. Mr Fugle made the following inquiry:
On [the] heel of never ending & costly litigation with council Farm Holdings
(4) Ltd has been forced into liquidation. This in turn led [mortgagee] CTS Investments LCC of Delaware to repossess FH’s land under its mortgage. I am overseas attempting to secure funding to present CTS offer to buy back – question has arisen encircling gst that could influence whether borrowing [will be] successful. You may recall undertaking was entered (don’t hold copy) whereas FH’s would not seek input tax when it made its land purchase albeit from memory encircled FH tax position only – was this so? Conscious if a new company did make claim on basics of purchasing from non registered would become subject to audit but at this stage I’m merely enquiring whether any factor denying a claim jumps out?
[63] Mr Fugle was advised by the Commissioner that without specific details on a proposed property sale the Commissioner could not provide tax advice, but that a GST refund claim based on the proposed facts would require at least some analysis or verification before the approval of a refund. Mr Fugle responded to the Commissioner, indicating that he would liaise further once he knew where matters were heading.
[64] Mr Fugle contacted Inland Revenue again on 18 December 2017, requesting a meeting, and informing the Commissioner that he intended to purchase the Property from CTS. Woodgate had been incorporated on 5 December 2017 and registered with Inland Revenue for GST purposes on the same day by Mr Fugle, who elected a monthly filing frequency.
[65] Mr Fugle and the Commissioner met on 9 January 2018. On 18 January 2018, the Commissioner emailed Mr Fugle, and noted that:
As I understand, the land encompassed in the drafted S&P agreement has previously been ‘owned’ by entities that you have been associated with and input tax credits claimed. It is also noted that GST output tax has never been accounted for when the land has been disposed of. As you will appreciate this is not correct and has caused the Commissioner serious concern. It is therefore not appropriate for her to give advice on a new proposed transaction.
Inland Revenue operates under a self-assessment regime. Therefore I suggest you get independent legal advice to determine the correct treatment of the transaction and for assisting in preparing the return if you believe you are able to make [a] claim. I would suggest that you advise your legal advisor complete details and history of all your dealings with this piece [of] land. If you do not wish to do this the other alternative is to request a binding ruling from IR.
[66] Between 19 and 23 January 2018, there was further correspondence between Mr Fugle and the Commissioner which culminated in Mr Fugle stating:
…having taken [advice] there is little to be gained by seeking [a] binding ruling.
The contract has been brought forward to settle on the 29 January. I shall thereafter forward you Woodgate’s GST claim together with supporting documents…
During our meeting you asked do/did I have any business interest in CTS Investment LLC to which I replied No. I am open to swear [a] statement to that effect.
Your letter implies [that the] Commissioner has missed out on GST from ‘fugle entities’. I do not perceive that is correct. My interest in the land began when I acquired some 300ha pre-enactment of the GST Act. Over the years the land (i.e. balance land following each stage developed) was sold between companies I owned on [a] ‘going concern – zero rated’ basis. The reason behind on-selling was commercial driven i.e. to ensure balance land was held in new company to avoid exposure to any potential liability.
When Pacific Farms sold, forced upon due to Council issues, output tax was declared.
Rather than the Commissioner [being] out of pocket she benefited substantially i.e. no input tax paid out on the original land purchaser while [receiving] gst on each section sale during ‘fugle entities’ ownership and, gst when Pacific Farms sold.
[67] On 29 January 2018, Woodgate (as purchaser) entered into an unconditional agreement for sale and purchase with CTS (as vendor) to purchase the Property for
$17,500,000 including GST, if any. Woodgate paid a deposit of $250,000. At the same time, CTS (as lender), Woodgate (as borrower) and Mr Fugle (as guarantor) entered into a term loan agreement for the principal sum of $17,250,000 secured by a first mortgage over the Property.
[68] However, as noted earlier, despite this sale, the Property remains registered in the name of CTS. Woodgate’s position is that this remains the case as it is obliged under the sale and purchase agreement to pay a second instalment of $1,000,000 to CTS and as it intended to fund this from the receipt of the refund arising from the GST Return, which has not been paid owing to the Commissioner’s ongoing investigation, Woodgate has not paid the second instalment. As a result, CTS is not willing to complete the transfer of the Property to Woodgate. The Commissioner’s view is that as the sale and purchase agreement provides for the transfer of title upon settlement, which is said to have occurred on 29 January 2018, the Property should have already been transferred to Woodgate.
[69] On 2 February 2018, Mr Fugle filed the GST Return, claiming an input credit in relation to the sale of the Property from CTS to Woodgate which indicated a refund of $2,282,608.69 to Woodgate. The same day, Mr Fugle emailed the Commissioner, attaching the settlement statement, sale and purchase agreement, term loan agreement, shareholders’ resolution, and a cashflow budget.
The investigation, culminating in allegations of delay
[70] On 13 February 2018, the Commissioner issued a notice to Woodgate pursuant to s 46(2)(b) of the GST Act, with the effect that no refund would be issued until the Commissioner had completed an investigation and review (the s 46 notice).50 This investigation remains ongoing, with the notice now having been issued over five years ago. The Commissioner says that this is due to the complexity of the investigation, and the fact that there have been earlier sales of land including the Property which also involved Mr Fugle, Mr Lundin, and their respective entities.51 The Commissioner says also he has ‘serious concerns regarding the bona fides of the input tax credit claimed by Woodgate’ and says he has had to respond to a significant amount of
50 The terms ‘investigation’, ‘audit’ and ‘review’ are used interchangeably to describe the Commissioner’s ongoing investigation into the GST Return.
51 In her affidavit of 22 September 2022, Ms Clancy refers to an entity controlled by Mr Lundin (TSS Holdings Limited) claiming an input tax credit for the purported sale of the Property from a company directed by Mr Fugle, Pacific Farms Development Limited. She says that the refund paid to TTS Holdings Limited was in the sum of $2,578,727 for a purchase price of $19,750,00, which was also vendor financed, and that the Commissioner was unable to recover the refund. Mr Fugle does not respond to this allegation specifically, but says that neither he nor his associated entities have received input tax credit over the land since its original purchase in 1988, and yet over the years output tax has been generated from hundreds of section sales.
correspondence from Mr Fugle and his representatives, particularly Mr Weaver, Mr Fugle’s legal adviser. Mr Fugle and Woodgate have consistently expressed their concerns about the timeliness of the Commissioner’s progress since being notified of the Commissioner’s intention to investigate the GST Return.
[71] Correspondence between the parties followed the issue of the s 46 notice, with the Commissioner again writing to Mr Fugle on 5 April 2018, advising that an audit would be conducted on the GST Return. The letter stated:
The audit will involve reviewing the purchase of 153 Pacific Drive by Woodgate Limited including the GST input tax credit claimed on the purchase. During this audit we may request further information from you as well as other parties.
I expect to complete this audit by 31 March 2019 subject to your co-operation and any requested information being made available to me as indicated. In the event a delay may occur, I will contact you to discuss an amended timeframe.
[72] As part of the audit, on 24 April 2018, the Commissioner asked for further information regarding the property, the circumstances of the sale to Woodgate, the liquidation of Farm Holdings (4) Limited, and Mr Fugle’s relationship with Mr Lundin.
[73] The investigation then continued throughout 2018 and 2019, not coming to an end by 31 March 2019, as indicated by the Commissioner, and without the Commissioner issuing a NOPA. There was voluminous correspondence between the parties with Mr Fugle inquiring why a refund had not yet been paid out and the Commissioner alleging in return that the GST Return was non-compliant and that there were further issues regarding the dealings with the Property.
[74] Mr Fugle became increasingly frustrated with the time it was taking to resolve the matter and proposed in mid to late 2018 that the issues be put before the Taxation Review Authority and/or the courts. He also obtained an independent legal opinion (which supported his position on the GST Return) and provided it to the Commissioner. There appears to have been some reluctance on behalf of the Commissioner to progress from his investigations through to the statutory dispute resolution process, by issuing a NOPA.
[75] On 8 November 2018, the Commissioner advised Mr Weaver of his usual expectation that investigations involving consideration of the general avoidance provision in the GST Act are to be completed within 28 months.52 The Commissioner also noted that there is no set timeframe for the completion of an investigation, with the length of an investigation affected by a number of factors including the complexity of the issues.
[76] This appears to be the Commissioner stating that when he is investigating a taxpayer’s self-assessment on the basis that there may be a tax avoidance arrangement, investigations prior to the issuing of a NOPA (being the point at which a dispute enters pt 4A of the TAA), are expected to be completed within 28 months. It is clear from the contemporaneous correspondence throughout late 2018 that the Commissioner considered that as the investigation was ongoing, it would not be appropriate to issue a NOPA. Mr Fugle remained involved with the investigation, fielding requests for further information, filing a formal complaint, obtaining further independent advice, and seeking information pursuant to the Official Information Act 1982. Mr Fugle also began to contemplate issuing judicial review proceedings.
[77] In early 2020, the Commissioner’s compliance work was paused, to focus on COVID-19 related workstreams. This delayed the Commissioner’s progression of the investigation.
[78] The Commissioner then wrote to Mr Fugle on 11 August 2020, summarising his position at that time. This was essentially that the arrangements made by Mr Fugle and Woodgate were likely to be considered tax avoidance arrangements, and that a NOPA was expected to be issued by 30 September 2020. Mr Weaver advised the Commissioner that Woodgate did not accept the Commissioner’s conclusions.
52 It is unclear from this correspondence from when the 28 months are to be measured from. However, if they are to be measured from the date the GST Return was filed, the expected completion date for the investigation and the issuing of a NOPA in the present case would have been 2 June 2020. If they are to be measured from the date of the email of 8 November 2018, the expected completion date and the issuing of a NOPA would be 8 March 2021. Both of these dates would be some time after the Commissioner’s initial indication that the investigation would be complete by 31 March 2019. In any event, the NOPA in the present case was in fact issued on 27 October 2020.
[79] Notwithstanding that indication of timing, the Commissioner’s NOPA was eventually issued on 27 October 2020, accompanied by an apology from the Commissioner for the delay. The NOPA proposed to disallow the GST Return completely and impose an evasion penalty of $1,711,965.52, on the basis that Woodgate (and by implication, Mr Fugle) either knew or ought to have known that it was not entitled to the refund sought.
[80] The NOPA, as well as contemporaneous correspondence between the parties (and telephone calls), confirmed that the Commissioner was contemplating filing criminal proceedings against Mr Fugle and/or Woodgate. It is also clear that the Commissioner recognised that his contemplation of criminal proceedings had an effect on Woodgate’s obligations to provide information in the context of the dispute regarding the GST Return. On 28 October 2020, Mr Weaver emailed the Commissioner, stating in respect of the NOPA:
I acknowledge receipt.
Two queries at this stage, I take it because the CIR has proposed [an] evasion SFP that she has decided not to pursue criminal prosecution? I just want to have this made clear so we can get on with this matter knowing that this is now off the table.
Ray – you mentioned a tax case to me over the phone – suri, surfri or something? can you please provide the citation or even better a copy of the decision you mentioned.
[81]The Commissioner replied to Mr Weaver on 29 October 2020, stating:
Hello David
As discussed just now and as advised in the covering letter with the CNOPA, criminal proceedings are being contemplated. However, I understand that this work is not going to commence for another couple of weeks but when it does, it will take into account the fact that a shortfall penalty for Evasion has been proposed in the CNOPA. Therefore, potential prosecution action is not off the table but a decision has not been made about this yet. As agreed I will keep you informed on progress and hopefully the decision will be made without undue delay. In the meantime, until a decision has been made, your client does not have to provide a NOR within the usual statutory two month response time frame (in line with R v Safi (2018) NZDC 19698) (but you can obviously do so). Unfortunately, I do not have a copy of the “Safi” decision to hand but if you cannot locate it and still need it, let me know and I can have a further look.
[82] The Commissioner had therefore advised Woodgate, through Mr Weaver, that as a result of the District Court’s decision in R v Safi, the Commissioner considered that an exceptional circumstance existed and Woodgate was not required to issue a Notice of Response within the two month timeframe usually required.53 The ostensible purpose for the Commissioner taking this position was to protect Mr Fugle’s and/or Woodgate’s fair trial rights in light of the possibility of prosecution, although the Commissioner also advised that Woodgate could choose to file a NOR at any time, notwithstanding the possibility of prosecution. The Commissioner also informed Mr Fugle directly that work on considering whether criminal prosecution would be pursued would not begin until after 16 November 2020.
[83] Notwithstanding the Commissioner’s indication that it was not required within the two month response period, Woodgate issued a NOR on 17 November 2020. It is apparent from the correspondence at that time, and the submissions made by Woodgate for this proceeding, that Woodgate issued its NOR because it considered that the Commissioner did not have the power to allow it to issue a NOR after the statutory response period, and it did not wish to risk being deemed to have accepted the Commissioner’s NOPA.
[84]Woodgate’s NOR stated:
WGL rejects the proposed adjustments contained in the Commissioner’s Notice of Proposed Adjustment “(NOPA)” in their entirety. WGL considers the application of the law to the accepted facts is incorrect and that the tax positions tax [sic] by WGL are correct.
[85] In essence, Woodgate’s position as set out in its NOR was that a taxable activity had occurred, notwithstanding that title to the Property was still in the name of CTS, and that the onus remained on the Commissioner to prove an evasion tax penalty should be imposed. Woodgate said that there was no evidence of any intention to
53 R v Safi [2018] NZDC 19698. This decision was delivered on 23 May 2018. The Commissioner adopted the view that the possibility of prosecution amounted to an exceptional circumstance under s 89K(3)(a)(i) of the Tax Administration Act 1994, which could prevent a taxpayer from providing a Notice of Response within the applicable time period (two months), and that it was not appropriate for Woodgate to provide a response before the question of prosecution was resolved. In July 2020, the Commissioner issued a Commissioner’s Statement in light of the Safi decision, see The Dispute Resolution Process and Fair Trial Rules (CS 20/04), 22 July 2020; and also Disputes Process (SPS 23/01), 24 February 2023 at [21]–[30].
breach a known tax obligation. The Commissioner responded formally on 30 November 2020, (within the Commissioner’s self-imposed one-month response period) rejecting Woodgate’s NOR, considering that it did not adequately rebut the black letter and tax avoidance concerns raised in the Commissioner’s NOPA.
[86] The next step was the conference phase. However, the Commissioner indicated in a letter of 30 November 2020 that a conference could not proceed until a decision had been made regarding the possibility of criminal prosecution. Despite this, the parties attempted to arrange a conference for 10 February 2021. Nevertheless, on 3 February 2021, the Commissioner advised that the conference had been put on hold: “due to the fact that prosecution action is still being considered”. This caused further frustration to Mr Fugle.
[87] On 1 March 2021, Mr Weaver sent a letter to the Commissioner, regarding the cancellation of the conference. Mr Weaver stated:
I do not propose to set out the many emails and letters and instances of telephone calls where the [Commissioner’s] officials have been chased up about the lack of progress of this matter. Nevertheless, when those matters were raised there has been all number of excuses including staffing issues, redundancies, Covid-19, legal reviews and similar. The number of excuses for delay have been various and many.
The latest excuse for delay including cancelling the scheduled conference is that the Commissioner is considering prosecuting Mr Fugle.
…
Having raised the potential decision to prosecute Mr Fugle in October 2020 he has been for the past 4 months left completely in limbo. Apart from the knowledge that the Commissioner of Inland Revenue “might” prosecute him for tax evasion.
It is entirely unfair and unreasonable for a person to be labouring under that type of uncertainty. Either the Commissioner should get on with a prosecution or get on with a civil dispute. I have said this to you multiple times and I have made that clear to your team leader…
[88] Mr Weaver also advised the Commissioner that he had received instructions to draft a complaint against Inland Revenue and a complaint to the Ombudsman. At the same time, Mr Fugle also emailed the Commissioner directly, expressing his concerns and asking for the dispute to be placed before the Taxation Review Authority.
[89] In an email of 2 March 2021 to Mr Weaver and copied to Mr Fugle, the Commissioner stated:54
In response to your comments in your letter, I appreciate that the audit of Woodgate’s GST return did take a long time before the dispute resolution process was initiated by the Commissioner issuing a Notice of Proposed Adjustment (NOPA). This may be explained in part by the complicated background to the acquisition of the Pacific Drive land by Woodgate Limited. As a result, considerable time had to be spent identifying the facts/background caused by your client’s actions and not by the Commissioner. The delay in initiating the dispute resolution process was also caused in part by the Commissioner’s resources being diverted to other matters. I apologise for this and, as you have acknowledged, I did ensure that the CNOPA was issued.
I also apologise for going ahead and organising the conference and then cancelling it. I wanted to keep things moving with the Woodgate civil dispute on my mistaken understanding that a decision about prosecution might be made before the date of the conference. However, the Litigation Solicitor made it clear to me that I had no choice but to put the civil dispute relating to Woodgate on hold. This was solely in order to protect your client’s fair trial rights and was not a delaying tactic on my part (which would serve no purpose). With respect to your client’s fair trial rights, you were advised that Woodgate did not need to file a Notice of response to the Commissioner’s NOPA within the usual statutory timeframe for that reason however you chose to do so.
With regard to prosecution action, as you know, legal services recommended prosecution of Woodgate and Mr Fugle in respect of the Woodgate GST arrangement be considered. However, prosecution considerations do not only involve Mr Fugle and Woodgate. Other non-compliance with tax obligations by your client and his associates is also relevant. The investigation into this is ongoing and a decision about prosecution will not be made until that investigation is complete.
Your client must be aware that failures to comply with tax obligations (e.g. failures of entities under his control to file income tax returns) are prosecutable offences. Consequently, it is not that the Commissioner is unfairly holding the spectre of prosecution over your client’s head as you suggest – the potential for prosecution of any taxpayer is due to non-compliance. Your assertion that “Mr Fugle and his associated entities is subject to some form of targeting” is simply not correct.
Please be assured that there is no intention on my part to delay the Woodgate civil dispute. My only intention is to ensure that Mr Fugle and his associates comply with their tax obligations historically and going forward.
[90] Mr Weaver replied on 5 March 2021, stating Woodgate’s view that the Commissioner had no power to extend the response period for a NOR, and asking
54 Another representative of the Commissioner replied separately to Mr Fugle’s email, indicating that the Commissioner’s position is that Woodgate’s GST refund input is not available by law and is a tax avoidance arrangement, along with other points made in the email addressed to Mr Weaver.
whether the Commissioner would issue a SOP if Woodgate and Mr Fugle consented to that, as “[a]ll indications are that Mr Fugle and Woodgate are quite willing to continue with the civil tax dispute [regardless] of the impact this would have on any trial rights”. Mr Weaver and Mr Fugle both continued to attempt to make it clear to the Commissioner that Woodgate wished to continue with the civil dispute notwithstanding the threat of criminal proceedings.
[91] As a result, on 22 March 2021, the Commissioner emailed Mr Fugle stating that by issuing the NOR , Woodgate (and Mr Fugle) had already to some extent waived their fair trial rights – but that with the conference and/or SOP phase of the disputes process, there was still the potential for matters to be revealed which could affect their fair trial rights. The Commissioner advised that in order to continue the dispute resolution process, Mr Fugle would need to provide a full waiver of his rights under oath for himself and Woodgate that applied to the entire dispute resolution process.
[92] Mr Fugle provided a further waiver on 30 March 2021. At the same time, Mr Weaver asked the Commissioner to issue a challenge notice under s 89N(1)(C)(viii) of the TAA so that the adjudication stage could be skipped, and the matter put before the Taxation Review Authority or the High Court. The Commissioner did not accept Mr Fugle’s document as a sufficient waiver and indicated that he expected that the dispute resolution process could continue, noting that the conference stage could not be formally dispensed with until further information had been provided.
[93] On 12 April 2021, Mr Fugle then provided another waiver witnessed by a Justice of the Peace. The waiver said:
I confirm that I have taken legal advice and now wish for Woodgate Limited to continue the civil disputes resolution procedures under the Tax Administration Act despite the threats made about a criminal proceedings [sic] against me.
For the sake of clarity I acknowledge that information gathered during the civil disputes resolution procedures could be used as evidence against me in any criminal proceedings that the IRD wish to commence against me subject to the Evidence Act 2006.
I make this statement knowing that subject to the rules of admissibility of evidence that in the event I disclose information during the disputes resolution
procedures, this could affect mine/Woodgate’s fair trial rights in any criminal proceeding.
[94] Following this, and apparently on the assumption that Mr Fugle had successfully waived both his and Woodgate’s fair trial rights, Mr Weaver then sought the Commissioner to issue a SOP, “as soon as possible” so the dispute could be progressed (if the Commissioner would not agree to dispense with referral to the Disputes Review Unit, under s 89N(1)(c)(viii)). The Commissioner advised that once further information had been provided to him, it could be agreed that the conference phase had ended.
[95] Despite ongoing correspondence about the provision of information, eventually, on 27 April 2021, the Commissioner wrote to Woodgate confirming that the conference phase had ended, as requested by Woodgate. There continued to be correspondence and debate as to the adequacy of the information provided by Woodgate and Mr Fugle to the Commissioner. The Commissioner advised also on 23 April 2021 that the Commissioner’s SOP would generally be issued within three months from the date the conference phase ends. Taking the date of 27 April 2021 as the date the conference phase ended, the Commissioner’s SOP would have been expected to have been issued at the latest by 27 July 2021.
[96] On 15 July 2021, the Commissioner informed Mr Weaver that the second proposed waiver of fair trial rights was insufficient. The Commissioner provided a document for Mr Fugle to sign, which he considered was sufficient, and which included a statement that it had been entered into under no compulsion from the Commissioner. This request was responded to by Mr Weaver on 30 July 2021, who alleged that the Commissioner’s request for a waiver was an “attempt to work around the issues which Judge Collins identified in Safi”. He said:
The Commissioner has proposed a shortfall penalty in her NOPA. As you will know the imposition of a shortfall penalty by the Commissioner precludes criminal prosecution. Therefore, I cannot understand why waiver of Mr Fugle’s fair trial rights is being sought.
Whether deliberately or not Mr Fugle however has been lulled into providing a Notice of Response together with [a] substantial amount of information to the Commissioner.
The Safi decision makes it clear that the Commissioner was aware that any criminal proceeding must go ahead before civil matters are commenced. In this case commencing a civil matter first and then charging Mr Fugle is a breach of fair trial rights – as set out in Safi. It seems to me that the Commissioner having now commenced a civil dispute wishes to usurp the trial rights of Mr Fugle through seeking a waiver of them so that she can prosecute him.
Conclusion
Mr Fugle will not be providing a waiver and I suggest that given the tax dispute has been on foot for 3 ½ years that the Commissioner issues her statement of position.
If criminal proceedings are pursued then it is highly likely that a stay application will be brought on the basis of the decision of Safi together with the supreme Court decision of Skinner and Rowley.
I simply highlight all the above and once again ask that the statutory procedures continue.
(emphases in original)
[97] The Commissioner responded on 3 August 2021, saying that the civil dispute had been put on hold until the criminal investigation was complete. Mr Weaver replied on 2 September 2022, reiterating the view that the criminal process was likely tainted through the commencement of the civil proceedings and asking if the Commissioner intended to remain on his current course. The Commissioner responded in an email of 3 September 2021, noting:
Hello David
Mr Fugle advised us that he had obtained legal advice and sought to waive his fair trial rights – he provided us with some documents to confirm this. We provided an alternative document however you advised in your last letter that Mr Fugle will not sign this. Therefore it seems that Mr Fugle no longer wants to waive his fair trial rights. That is perfectly fine – this is not something we have sought.
You also consider that Mr Fugle / Woodgate have been “lulled” into providing a NOR however this is not true. In the covering letter with the CNOPA I advised that a NOR was not required within the usual statutory time-frame (refer extract below) – you disagreed with this and went ahead and filed a NOR. That is, you provided a NOR on behalf of Woodgate voluntarily. You now appear to consider that by filling a NOR voluntarily you have impacted Mr Fugle/Woodgate’s fair trial rights. Given we do not consider the NOR you voluntarily provided adequately addressed the issues in the CNOPA (refer attached letter) it seems unlikely that it would impact your client’s fair trial rights in any prosecution action but you were clearly advised of that possibility (refer below). It is still open to you to argue that should you [choose] to do so in any prosecution action. In the meantime, to protect Mr Fugle/Woodgate’s
fair trial rights in any prosecution action, the civil dispute resolution process remains on hold.
…
At the moment, IR’s focus is on providing support during the Covid lockdown. I will get back in touch with you once that focus changes (probably a couple of weeks) if you wish to discuss this further.
The pleaded Time Bar Decision
[98] Then in November 2021, an internal Inland Revenue communication identified a possible issue regarding a time bar arising in respect of the Commissioner’s ability to amend Woodgate’s GST assessment. This arose because of s 108A of the TAA, as set out above.
[99] The effect of s 108A is that, generally, the Commissioner’s ability to amend a GST assessment by increasing the amount assessed ends after four years have passed from the end of the GST return period in which the return was filed. That period in respect of Woodgate’s GST Return came to an end on 28 February 2022. Given the terms of s 108A, the Commissioner’s power to amend the GST Return by increasing the amount assessed after 28 February 2022 is contingent upon his consideration that Woodgate knowingly or fraudulently failed to disclose to the Commissioner all of the material facts that are necessary for determining the amount of GST payable for the GST return period.
[100] Between 17 and 25 February 2022, an internal memorandum was circulated within Inland Revenue recommending the exercise of the Commissioner’s powers under s 108A(3) in relation to Woodgate’s GST Return. The memorandum also records the approval of the reopening of the time bar pursuant to s 108A(3) by a representative of the Commissioner who held the appropriate delegated authority for that purpose, dated 2 February 2022. The memorandum was not provided to Woodgate at that time. The Commissioner contends that the formation of this opinion means that the dispute continues, and the Commissioner retains the power to amend Woodgate’s self- assessment in the GST Return, despite the passage of more than four years since 28 February 2018.
[101] On 7 March 2022, after a period of relative non-interaction between the parties, Mr Weaver emailed the Commissioner, stating:
Woodgate Limited filed its GST return, which is the subject of this dispute, over four years ago. The time bar for amending that GST period has now expired.
I simply wish to make it entirely clear to you that the Commissioner has not progressed this matter within the 4 year statutory time bar period and the return should now be properly processed.
I look forward to you confirming the return has been processed by the Commissioner given the expiry of the time bar period within which the return can be amended in any event.
[102]The Commissioner replied on 9 March 2022, stating:
At this stage, the Commissioner has not yet made a decision with regard to prosecution considerations and until a decision has been made, the civil dispute remains on hold.
[70] I agree with the Judge that the civil tax dispute process proceeded a significant way down its path before the prosecution commenced, and that as a result, as he was obliged to do, Mr Parore had either directly or through his advisors disclosed a considerable amount of information on the basis on which he would defend some of the charges and that he had admitted the actus reus of other of the charges.
[71] The minimum standards of criminal procedure recognised in s 25 of the New Zealand Bill of Rights Act are available only to a person who has been charged with an offence.
[72] When the Commissioner was dealing with the civil dispute, she had not charged Mr Parore. However, when she subsequently charged him on 26 August 2019, in my judgement, she put Mr Parore in an impossible position. She had used her statutory powers under the TAA to effectively require Mr Parore to disclose his prospective defence, to deprive him of the right to remain silent, to get him to acknowledge the actus reus of certain of the offences and to disclose his hand in relation to other of the offences. When the charges were laid, a fair trial for Mr Parore was already an impossibility. I agree with observations made by Judge Collins in Safi that, whether innocently or deliberately, the Commissioner cannot bring about a situation where she is forewarned ahead of trial what defences will be run, what evidence the defence will call and then, being so forewarned, assert that the trial is fair.
[73] In my view, there was prejudice to Mr Parore when the charges were laid because his fair trial rights were then engaged but they had already been compromised.
[74] Looking forward, any trial was going to be unfair and it would be unfair were the trial allowed to go through to its conclusion because Mr Parore’s fair trial rights were undermined from the outset.
[222] I accept that in Mr Parore’s circumstances, that was the appropriate outcome.109 Nevertheless, I consider that Parore can be distinguished in the present case for the reasons I will now discuss.
106 Commissioner of Inland Revenue v Parore [2021] NZHC 3405, (2021) 30 NZTC 25 at [35].
107 At [61].
108 Above n 106.
109 See Parore v Attorney-General [2023] NZHC 1010 in which Mr Parore was recently awarded
$70,989.86 in Baigent’s damages consequent on the breach of his fair trial rights, and a further
$5,000 for emotional harm.
[223] First, as I have already noted, on no construction of the correspondence between the parties can it be said that Woodgate was compelled to provide the NOR. It did so voluntarily, having been notified of the District Court’s decision in Safi, that it did not need to provide a NOR, and that the Commissioner was contemplating criminal proceedings against both it and Mr Fugle. When Mr Fugle pressed to continue the civil dispute, the Commissioner was cooperative. The evidence suggests that the Commissioner paused the civil dispute so as to protect Woodgate and/or Mr Fugle’s fair trial rights.110 That decision was expressly informed by Safi, and no doubt the cases referred to therein.
[224] Second, there is no indication that the Commissioner was contemplating a criminal prosecution prior to the point at which he notified Woodgate that was the case, which was some time after the investigation had begun, and when the NOPA was provided. There is no evidence that leads to an inference that criminal proceedings were contemplated long before Woodgate was actually notified of that. The evidence instead shows that work on considering prosecution did not commence until sometime after the NOPA was issued, at least not until 16 November 2020.
[225] Third, as criminal charges have in fact not been filed, it would be inappropriate for the Court in this context to rule on whether the content of the information disclosed by Woodgate is such as to jeopardise fair trial rights in the manner contemplated by Safi, namely whether the Crown is, at the present time, forewarned of the contents of Woodgate and/or Mr Fugle’s potential future defence. Notably, Woodgate failed to particularise what that information was, or exactly when it was provided to the Commissioner, instead preferring to very generally allege that the standard had been met.
[226] The Court cannot speculate as to the likely defence to the elements of as yet hypothetical charges. If in fact, Woodgate and/or Mr Fugle are charged, it will then remain available to them to argue that criminal prosecution is inappropriate on the basis that their fair trial rights have been breached, as their fair trial rights will engage at the time they are charged.111 I consider that any other position would unduly cut
110 Compare Parore, above n 106, at [57] and [61].
111 New Zealand Bill of Rights Act 1990, s 25.
across the statutory regime. I consider that also, at this stage, Woodgate and/or Mr Fugle’s fair trial rights in this sense remain unimpeded.
[227] There is also a basis on which to argue, as submitted by the Commissioner, that Woodgate has not been completely forthcoming in the provision of information throughout the civil dispute. That goes to whether the Commissioner has been forewarned of the likely nature of Woodgate and/or Mr Fugle’s potential future defence(s), and tends to suggest that the Commissioner has not been so forewarned.
[228] Accordingly, for the reasons above, I conclude that the Commissioner’s decision to pause the civil dispute process pending contemplation of criminal proceedings was not improper, in error of law, or to the detriment of Woodgate and/or Mr Fugle’s fair trial rights. It cannot therefore be used to support an allegation of undue delay.
[229]I turn now to the more general allegation of delay.
[230] Judicial review on the basis of unreasonable or undue delay relies on a legitimate expectation of a decision within a reasonable time, and a duty to decide within a reasonable time.112 What constitutes a reasonable time depends on particular circumstances. However, delay in decision making is an error of law if the delay renders the decision divorced from the evidence on which it is based, or where it undermines the rule of law.113
[231] Woodgate relied on the following matters in alleging that the Commissioner is under a duty to issue an assessment and/or progress the tax dispute within a reasonable time:
(a)Section 89A(1)(d) of the TAA provides that the purpose of the disputes procedure is to “promote the prompt and efficient resolution of any dispute concerning a disputable decision by requiring the issues and
112 Graham Taylor Judicial Review A New Zealand Perspective (4th ed, Lexis Nexis, Wellington, 2018) at [15.80]; citing Vea v Minister of Immigration [2002] NZAR 171 (HC); and Ngunguru Coastal Investments Ltd v Māori Land Court HC Whangārei CIV-2010-404-548, 11 May 2011.
113 Maddock v Immigration and Protection Tribunal [2013] NZHC 585, [2013] NZAR 520 at [16]; citing Warstler v Department of Labour [2000] NZAR 408 (HC).
evidence to be considered by the Commissioner and a disputant before the disputant commences proceedings”.
(b)Much of pt 4A of the TAA is governed by express statutory timeframes.
(c)Parliament can be assumed to have intended for the Commissioner to progress that process in a timely manner in the circumstances, and without undue delay.
(d)The common law imposes similar expectations of promptness.
(e)The Commissioner’s general obligations in the administration of the tax system contained in ss 6 and 6A of the TAA.
(f)The Commissioner’s own policy statements which provide for the ongoing and proactive engagement between the Commissioner and the taxpayer until the dispute falls away.
[232] At the heart of the general delay issue is a dispute between the parties as to their respective levels of engagement with the statutory process, with both sides alleging they have engaged fulsomely and promptly, and saying the other has not. I consider that, like all administrative and legal decision makers, the Commissioner is indeed under a duty to act within a reasonable time. I have expressed my view that allegations of delay cannot lie against the Commissioner until after the passing of the four year time period and the invocation of the exception in s 109A. Nonetheless, I address this allegation, in case my earlier conclusions on amenability are incorrect and general allegations of delay can arise against the Commissioner prior to the conclusion of the four year time period.
[233] I accept the view of Richardson P in Commissioner of Inland Revenue v Wilson, that:114
The imposition of time limits is a central feature of tax administration in New Zealand, as in other jurisdictions. It is part of the scheme and policy of the
114 Commissioner of Inland Revenue v Wilson (1996) 17 NZTC 12,512 (CA) at 12.
legislation. Without time constraints, administrative chaos and uncertainty would ensue. The Commissioner could not close the books. Taxpayers would not know where they stood. The setting of time limits and other constraints throughout the legislation recognises that the correctness and the quantification of tax liability is not an absolute value.
[234] It is also the case that the purpose of pt 4A generally is the prompt resolution of disputes, and that a Commissioner cannot abuse their statutory powers to unduly delay the resolution of disputes. This is a principle that goes to the overall integrity of the administration of the tax regime.
[235] Nevertheless, at the current point of the disputes process, the Commissioner is not in breach of any specific statutory timeframe, and it is equally clear from Contract Pacific and Mawhinney that the Commissioner is not compelled to issue a GST refund within any particular time, and that it would be inappropriate for the Courts to engraft a specific timeframe onto the legislation. In addition, s 108A(3) of the TAA speaks to another principle essential to the integrity of the administration of the tax regime— that it would be inappropriate for taxpayers to hide behind the Commissioner’s duty to act promptly when there is a reasonable basis for an honestly held belief that they have acted knowingly in a misleading or fraudulent manner.
[236] As a result, what the Court must do when faced with a general allegation of undue delay, as divorced from an explicit statutory obligation to act or decide within a particular timeframe, is look to the particular circumstances of the case and assess whether there has been undue delay. I now do so.
[237] First, I address the Commissioner’s reliance on the effect of COVID-19 on his work priorities and resources. I acknowledge the extreme effect of the pandemic on all of Aotearoa New Zealand, and the efforts of public officials during the response to it. For a time, the effect of COVID-19 was a reasonable explanation for delay. However, if the point has not already been reached, I consider that the time is fast approaching when reference to COVID-19 can no longer be considered to be a convincing explanation for delay in making administrative decisions or exercising statutory powers. This is particularly so when in the present case, the GST Return was filed approximately two years prior to the first case of COVID-19 recorded in
Aotearoa New Zealand. This matter has been afoot for some time, and is in need of resolution.
[238] Second, and on the other hand, I am not convinced by Woodgate’s assertions that it has engaged with the disputes process and the Commissioner’s requests for information to the best of its abilities. I consider that at times, Woodgate has frustrated the dispute process, by not providing requested information (particularly to the level of detail sought), and also by sending significant amounts of correspondence from both Mr Fugle and Mr Weaver, some of which was inconsistent. It is also obvious from the material filed by the Commissioner and the allegations made in that material that the investigation is complex. I accept that when levelling allegations of the magnitude which the Commissioner seeks to do in the present case, he is bound to establish a proper evidential basis for those allegations, which in the circumstances may be complex, and take significant time even in the absence of a global pandemic.
[239] Third, in respect of the decision to pause the dispute process, the Commissioner made that decision properly, and for good reason, given the need to protect Woodgate and/or Mr Fugle’s fair trial rights. I consider that as a result it would be inappropriate to consider that the Commissioner had countenanced undue and/or unlawful delay when the need for delay arose out of rights-consistent action. That in itself cannot be unlawful, or criticised on the basis of delay.
[240]Finally, the relief sought by Woodgate in respect of delay is:
(a)a declaration that the Delay Decision is quashed;
(b)a declaration that the Commissioner has acted in a procedurally unfair manner towards Woodgate;
(c)a declaration that the Commissioner is required to reconsider the Delay Decision; and
(d)a declaration that the Commissioner is to release the GST Refund;
[241] Declarations that the Delay Decision be quashed and reconsidered would effectively be the Court enabling a breach of Woodgate and/or Mr Fugle’s fair trial rights. That would be inappropriate. Further, the Court cannot simultaneously direct reconsideration of the Commissioner’s decisions and direct release of the GST Refund. Had I concluded that the Time Bar Decision was made in error in the public law sense, the release of the GST refund might have followed as a matter of process. However, I did not reach that conclusion.
[242] I agree with the Commissioner that granting the relief sought by Woodgate would be contrary to the Commissioner’s duty to protect the integrity of the tax system, and would cut across clear Parliamentary intent that the TAA is a code for the resolution of tax disputes. It would also invalidate the future assessment that is yet to be made by the Commissioner.
[243] Accordingly, I conclude that the Commissioner has not acted unlawfully or procedurally unfairly on the grounds of the general allegation of undue delay. This ground of review therefore fails.
The s 17B Notice—was its issue or the refusal to disclose the information obtained unlawful?
[244] As explained earlier, the parties agree that the exercise of the Commissioner’s powers under s 17B is amenable to judicial review. The s 17B Notice in this case was directed to Spark, dated 16 August 2019, and stated (in full):
I, Joseph West, Customer Compliance Specialist of Wellington being duly authorised by the Commissioner of Inland Revenue pursuant to section 7 of the Tax Administration Act 1994 (“the Act”), require you to furnish the following information relating to the above person(s) by 13 September 2019.
1.All emails to and from the account [email protected] from 1 January 2016 to present.
2.All text messages currently held, if more than 3 months are held we are happy to discuss.
The above information, which I consider both necessary and relevant to the functions of the Commissioner, is required in terms of section 17B of the Act (copy attached)
Please contact me as soon as you are able, so I can arrange for the provision of the information to our Digital Forensics Unit (“DFU”). The DFU will
[ensure] that any information that may be subject to legal privilege or that could be considered tax advice documents are handled appropriately. Further standard information regarding these matters [is] detailed below.
If any of the above is covered by legal professional privilege, you should seek further advice on this matter. If the privilege does apply to any document, please provide a list of all documents for which the privilege is claimed.
Taxpayers also have statutory rights of non-disclosure for documents containing tax advice. If any document required to be disclosed under this notice contains tax advice, you should seek further advice on this matter….
Failure to comply with this notice by the required date advised above could result in an offence being committed against the Act. However, no third party may be convicted of an offence for not providing information to the Commissioner, whether knowingly or not, if that person proves they did not have that information in their knowledge, possession or control.
[245] The Commissioner has confirmed in this proceeding that emails were received from Spark, but no text messages were ever received from Spark.
[246] Mr West has not given evidence in this proceeding. He left the Inland Revenue Department in late January 2020. Woodgate, in its oral submissions, took issue with this, pointing to the lack of information provided by the Commissioner, and suggesting that it was inconsistent with the duty of candour in a judicial review proceeding.115 Woodgate said that information provided by the Commissioner was insufficient to satisfy the Court that the s 17B Notice had been issued lawfully.
[247]The evidence provided by Ms Clancy for the Commissioner states:
I do not know the reason why Mr West issued this notice but I do note that the letter of engagement for the liquidation of Farm Holdings dated 18 May 2016 is addressed to that email account. However, I consider that Mr Fugle’s emails for this period of time would be of assistance to the Commissioner’s investigation given part of the focus of the investigation involves Mr Fugle’s involvement with Farm Holdings, Mr Kamal (as the liquidator of Farm Holdings) and Mr Lundin (for CTS Investment LLC).
[248] Ms Clancy also states that the entirety of the documentation obtained has not yet been disclosed as it may prejudice the Commissioner’s ongoing investigation.
115 See for example Attorney-General v Institution of Professional Engineers New Zealand Inc [2018] NZHC 74, [2018] NZAR 275.
[249]Woodgate submits the request made in the s 17B Notice was unlawful as:
(a)it was too wide—being a blanket request for all emails sent to and from a personal account for a period predating the transaction in question by two years, until a time two years after, and all text messages over an unlimited period, suggesting the Commissioner had no particular objective in mind;
(b)temporally, the Commissioner’s only legitimate interest in Woodgate and its affairs capable of grounding a s 17B information request relates to the transaction with the Property in January 2018;
(c)by the time the s 17B Notice was issued, the Commissioner had obtained considerable information from Woodgate regarding the transaction and its background, meaning that he should have been able to particularise the request further than he did;
(d)no effort was made to ensure the request only obtained information that was necessary or relevant;
(e)the Commissioner has not provided an evidential foundation for the breadth of the request, or substantiated how he took steps to ensure the s 17B notice was lawful, and in the absence of that evidence there is an available inference that the power was used for an improper purpose; and
(f)Woodgate was not notified of the request and it is likely that the information received contains privileged information, as well as personal information not relevant to the Commissioner’s objectives.
[250] Woodgate claims that the Commissioner is only entitled to request information that he considers necessary or relevant.116 It says that the Commissioner has not
116 Green v Housden [1993] 2 NZLR 273 (CA); and Commissioner of Inland Revenue v Chatfield & Co Ltd [2019] NZCA 73, [2019] 2 NZLR 832 at [52].
satisfied that evidential foundation, and that there must be a limit to his wide-ranging power to request information. Woodgate relies on the Court of Appeal’s view that:117
It is elementary law that statutory power must be used bona fide for the purposes for which it was conferred and that its exercise must not exceed what is reasonably required in the circumstances of the case.
[251] Woodgate also submits that the Commissioner’s failure to disclose the material obtained from Spark is in breach of natural justice, saying that only an order for full disclosure of the material obtained will sufficiently sanction the unlawfulness of the s 17B notice. It says that natural justice dictates that Woodgate be appraised of the allegations made against it and the evidence in support. While Woodgate must have knowledge of all of the acquired information, that does not mean it does not need to be disclosed. The Commissioner points to s 18(3) of the TAA to withhold the material it obtained from Spark. That section relevantly provides:
… the Commissioner is not required to disclose any item of revenue information if the release of the information would adversely affect the integrity of the tax system or would prejudice the maintenance of the law.
[252] Woodgate says s 18(3) does not assist the Commissioner as the release of information already known to Woodgate would not “prejudice the maintenance of the law”.
[253] The Commissioner does not accept that it was beyond his statutory powers to issue the s 17B notice, and says that the information in question was necessary and relevant. He relies on the statement of Wylie J in Chatfield that:118
The discretionary power vested in the Commissioner pursuant to s 17 is one of considerable potency. It is, however, necessary in the public interest. The Courts have recognised that extensive powers of inquiry are a fundamental feature of revenue legislation, as information is generally in the hands of taxpayers, who may have an incentive to act secretively. The Commissioner can seek information and documents that alert her to lines of inquiry. It has been recognised that the rationale of taxation would break down, and that the burden of taxation would fall only on diligent and honest taxpayers, if the Commissioner could not obtain information about taxpayers who may be negligent or dishonest in respect of their tax obligations.
(footnotes omitted)
117 Green v Housden, above n 116, at 14.
118 Chatfield & Co Ltd v Commissioner of Inland Revenue [2017] NZHC 3289, [2017] 2 NZLR 835 at [25].
[254] Although the request in this case was wide, the Commissioner also relies on the Court of Appeal’s statement that:119
Section 17(1) is concerned with the purpose to be served by the furnishing of information. If it is relevant to make the inquiry as a step towards ascertaining whether or not there is a liability to tax, the inquiry remains relevant even if the answer satisfies the Commissioner that no further step in relation to some of those identified is warranted.
[255] The Commissioner then contends that it is the purpose of the request that is required to be “relevant or necessary” to “administration or enforcement” for the request to comply with s 17B. It is not the information received in response to a request that needs to be relevant or necessary. The breadth of the request was necessary, as Mr Fugle first contacted the Commissioner regarding the purchase of the Property on 13 June 2016, and therefore the relevant period was some time before the purchase actually occurred. The Commissioner submits that this factual background illustrates that the request was relevant and necessary in his investigation in determining whether a tax avoidance arrangement was in existence, as stated in the s 17B Notice. The Commissioner also submits that he is required to provide a sufficient factual basis for any allegations of a tax avoidance arrangement pursuant to s 76 of the GST Act, and the s 17B notice was in pursuit of that purpose. As to the risk of receiving personal information, the Commissioner points out that he knew Mr Fugle used the specified email account to correspond with the Commissioner and for business purposes but could not know whether he also used it for his personal affairs.
[256] The Commissioner agrees that the receipt of legally privileged information was foreseeable, and that this is why the s 17B Notice itself notified Spark that the information would be provided to the Commissioner’s Digital Forensics Unit so that any privileged information could be handled appropriately. The Commissioner says that whether that occurred is not within the scope of this proceeding, as Woodgate has not alleged that the information was handled inappropriately, and it would be premature to consider the issue, in any event, while the investigation is still ongoing.
119 Commissioner of Inland Revenue v New Zealand Stock Exchange [1990] 3 NZLR 333 (CA) at 447. I note that case discussed a predecessor to s 17B, which was s 17 of the Inland Revenue Department Act 1974.
[257] As to the current withholding of all the information obtained, the Commissioner accepts that natural justice does require disclosure of all the information but that it is a matter of timing. He accepts that in civil or criminal proceedings he would be required to disclose the entirety of the information, but submits that to do so before he has finalised his position would prejudice the investigation. He says that Parliament has not imposed a duty on the Commissioner to supply all information acquired through a s 17B notice prior to the point at which he will finalise his position through his SOP.120
[258] The Commissioner says that it would be inappropriate to require him to provide such information before that point, as that would go against his statutory functions, and prejudice ongoing investigations. The Commissioner submits that Parliament has made it clear that investigating agencies may withhold information where disclosure may “prejudice the maintenance of the law, including the prevention, investigation, and detection of offences”.121
[259] As discussed above, s 17B was preceded by the information gathering powers set out in the former s 17(1) of the TAA. Section 17(1) was considered in Green v Housden and Chatfield & Co Ltd v Commissioner of Inland Revenue.122 In Chatfield, Wylie J discussed the meaning of ‘necessary or relevant’, considering that ‘necessary’ means “required or needed”.123 Wylie J also accepted that when making a request pursuant to the former s 17, the Commissioner needed to satisfy himself that the nature of the information sought was or appeared to be “consistent with the grounds of the request, and that the type of information sought was broadly what would be expected to be necessary for or relevant to any inquiry of the nature indicated.”124
[260] It is well established that statutory powers must be used for proper and permitted purposes and go no further. However, the request for the documents in this case did not offend against this principle.
120 Tax Administration Act 1994, s 89M(4)(b).
121 See Official Information Act 1982, s 6(c); Privacy Act 2020, s 22; Evidence Act 2006, s 70; and Tax Administration Act 1994, s 18(3).
122 Green v Housden, above n 116; Chatfield, above n 118; affirmed in Chatfield & Co Ltd v Commissioner of Inland Revenue [2019] 2 NZLR 832 (CA), (2019) 29 NZTC 24-007.
123 Chatfield, above n 118, at [75].
124 Chatfield, above n 118, at [47].
[261] While I do not have the relevant documents before me and nor did Mr West give evidence, I consider that the information sought (subject to safeguards to protect privileged information) was necessary and/or relevant to the ongoing investigation into Woodgate’s and Mr Fugle’s tax affairs, and specifically the investigation into the GST Return. That is apparent on the facts as they are before the Court and from the nature of the investigation.
[262] Although the request was broad, I do not accept Woodgate’s submission that it was too broad because the information sought pre-dated the relevant transaction. Mr Fugle raised the possibility of the transaction with the Commissioner for the first time in 2016. It is reasonable to adopt the view, as no doubt the Commissioner did, that email correspondence from that time would be relevant to his investigation of the transaction as a whole. The fact that the email request extended to 2016 suggests that the Commissioner did have a clear object in mind, being the investigation of the circumstances that led to the filing of the GST Return in their entirety. An improper request would have been for all emails ever sent from the account at any time, with no limitations. But that is not what the Commissioner requested.
[263] Woodgate sought to characterise the request for text messages as inappropriately broad in this fashion. However, that request itself was conditionally limited by a period of three months, a period which is much shorter than the period in respect of the email request. I consider also that the request for text messages was appropriately limited and relevant to the Commissioner’s investigation. It is clear from the surrounding context that the request was in furtherance of obtaining information that was necessary and relevant to the ongoing investigation, and I accept that this must have been so at the time Mr West issued the s 17B Notice. The issue of the s 17B notice cannot be described as an improper use of the Commissioner’s wide discretionary power to obtain information for the purpose of functions given to him by Parliament under the taxation regime.
[264] The request for such information also outlined a process to ensure that privileged information was not disclosed. First, Spark was alerted to the possibility of such information being included and a course for dealing with such information was suggested. Second, the information in its entirety was to be dealt with by the Digital
Forensics Unit. Privileged information would not be used by the Commissioner in any civil or criminal proceedings, unless it is shown that it was made or brought into existence for the “purpose of committing or furthering the commission of some illegal or wrongful act.”125 As the Commissioner points out, breach of privilege has not been pleaded and the appropriate time for such arguments to be made is not now, but rather in the context of the civil dispute and/or criminal proceedings.
[265] Accordingly, I conclude that the Commissioner did not act unlawfully or for an improper purpose in issuing the s 17B notice.
[266]I turn now to the issue of non-disclosure.
[267] It is fundamental that a person must have an adequate opportunity to know the allegations made against them and the evidence in support. Counsel properly accepted that the civil tax disputes procedure engages the fundamental right of natural justice. Every person has the right to the observance of the principles of natural justice by any tribunal or other public authority which has the power to make a determination in respect of that person’s rights, obligations, or interests protected or recognised by law.126 Natural justice is an important component of the rule of law.
[268] The parties are agreed that Woodgate should be provided with the information obtained through the s 17B notice. Where they differ is on when that information should be provided. I note that the Commissioner has already provided some documentation to Woodgate, but has since refused to provide the remainder on the basis that it is premature for him to do so, and that the provision of the information would prejudice the ongoing investigation.
[269] The Commissioner relies on s 89M(4), which provides that the Commissioner’s SOP must set out with sufficient detail to fairly advise a disputant of:
(a)the outline of facts on which the Commissioner intends to rely;
125 Tax Administration Act 1994, s 20(1)(c).
126 New Zealand Bill of Rights Act 1990, s 27(1).
(b)the outline of evidence on which the Commissioner intends to rely;
(c)the outline of issues that the Commissioner considers will arise; and
(d)the specified propositions of law on which the Commissioner intends to rely.
[270] The Commissioner says that prior to the provision of a SOP, the Commissioner is not required to furnish information in such detail, and that therefore it would be inappropriate for the Court to create or enforce a duty to act to the contrary, and that it would prejudice the ongoing investigation. The Commissioner submits that it would also undermine the wide discretionary power in s 17B to gather information to facilitate the proper discharge of his statutory functions. The Commissioner relies also on s 18(3) of the TAA, which I have set out above.
[271] In the circumstances, I do not accept that the Commissioner has acted in breach of Woodgate’s and/or Mr Fugle’s rights to natural justice. The Commissioner accepts that the relevant information will be disclosed in due course. Woodgate and Mr Fugle can be taken to have knowledge of that information. They can also be taken, at this stage of the process, to have a clear idea of the nature of the allegations against them, having received the NOPA, and engaged in significant correspondence with the Commissioner, much of which also reveals the nature of the allegations.
[272] Further, I can identify no obligation on the Commissioner in the legislation that would require specifically the Commissioner to disclose information obtained via s 17B, other than the time at which a SOP is issued. That appears to have been the intention of Parliament—that by the time a SOP is issued the investigation phase has come to an end, and the Commissioner is required to furnish all information relevant to the dispute, together with a concise summary of the allegation(s) against the taxpayer. In my view, it would be inappropriate for the Court to cut across the statutory regime to require the disclosure of that information prior to the point at which Parliament has mandated that the Commissioner must clearly state its position, and particularly in the present circumstances, where that is the next step in the process to be taken.
[273] In view of my finding that the Commissioner has no obligation to disclose the information at this stage, it is not necessary for me to consider the effect of s 18(3). I do however observe that requiring the Commissioner to disclose information about the thread of the investigation being pursued may jeopardise the investigation. Further consideration is not necessary on that point. The Commissioner is entitled at this stage of the process to withhold the information. It would be inappropriate for the Court to impose a requirement to disclose the information where currently there is none. While it may be of some concern to a taxpayer that there is the potential for the Commissioner to be in possession of information gained without their knowledge via a third party, that is within the power that Parliament has provided to the Commissioner to effect his statutory functions. Should the Commissioner act outside of those powers, or breach fundamental rights in pursuit of those functions, the courts will provide relief. This is not such a case.
Relief
[274] As I have come to the view that all grounds of Woodgate’s application may be dismissed, it is not necessary to address the question of relief.
Result
[275]For the reasons set out above, Woodgate’s application is dismissed.
Costs
[276] If the parties are unable to reach agreement as to costs, the Commissioner may file a memorandum within 15 working days of this judgment, with Woodgate having a further 15 working days to reply. I will then deal with the issue of costs on the papers.
McQueen J
Solicitors:
Holland Beckett Law, Tauranga for Applicant Crown Law Office, Wellington for Respondent
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