Taxpayers lose day to reply in dispute process

Formal dispute resolution procedures control the process of a dispute between a taxpayer and the Tax Commissioner.

It is critical for each party that these procedures are complied with, as failure to do so can result in the defaulting party being deemed to have accepted the position proposed by the other party - the right to contest the issue is lost.

Generally, each step of the dispute resolution procedures must be completed within two months of the date the relevant notice is issued. This notice could be, for example, a decision of the commissioner under a tax law, a Notice of Assessment, a Notice of Proposed Adjustment (Nopa) and so on.

These procedures were introduced in October 1996. Until recently, it has been the accepted practice that the two-month period runs from the notice's issue date to the corresponding numerical date. For example, if the commissioner issued a Nopa on May 5, 2000 then the taxpayer would have up to and including July 5, 2000 to issue a Notice of Response.

But in June, the commissioner advised that a different approach would be taken for all notices issued on or after September 1, 2000.

This new approach is based partly on the Interpretation Act 1999, which provides assistance where, for example, as in this case, the word "month" is not defined in the legislation containing the dispute resolution procedures.

The method is to count the day of issue as starting the two-month period.

The commissioner considered the old system gave taxpayers two months and one day in which to reply.

Therefore, the commissioner will now only accept a notice issued up to and including one day before the corresponding numerical date. For example, if a Notice of Assessment is issued on September 8, then in order to be accepted by the commissioner, the taxpayer must issue a Nopa by November 7.

This is a critical issue for taxpayers and their agents, especially those agents who have traditionally waited until the corresponding numerical date to issue, for example, a Nopa.

Where an adjustment notice has been issued outside of the two-month response period, the commissioner has no power to extend the response period unless he or she accepts there was an "exceptional circumstance."

This is a difficult threshold to meet.

The commissioner has also confirmed, again in accordance with the Interpretation Act, that where the response period falls on a holiday or non-working day, then a notice will be accepted if issued on the next working day.

For example, if the commissioner issues a Notice of Assessment on November 1, 2000 (ordinarily meaning that the taxpayer would have to issue a Nopa by December 31, 2000, a Sunday), then the taxpayer would have until January 3, 2001 to issue a Nopa to contest the assessment.

In conclusion, taxpayers and agents should ensure that they comply with the new approach adopted by the commissioner to the two-month dispute resolution response period, to ensure that they do not lose their dispute simply for failing to comply with the underlying procedural rules.

* Denham Martin is the principal of Denham Martin and Associates, lawyers specialising in advice on taxation and related matters.