Relief for Chatfield’s finally…
Some of you may have been following the Chatfield & Co case (“Chatfield”), which concerned the issue of s.17 notices in 2014 by the Commissioner pursuant to a request for assistance she had received from the Korean National Tax Service (“NTS”). The sole reason for issuing the s.17 notices, was to obtain the information requested by NTS and there was no NZ tax revenue in issue.
Chatfield challenged the legality of the s.17 notices, commencing proceedings with respect to the Commissioner’s decision to issue, and concurrently seeking a disclosure order for the Commissioner to provide full details of “any and all” exchanges between the Commissioner and NTS with respect to the request made by NTS under the DTA.
The disclosure order aspect of the case was finally brought to a close, when Chatfield was declined leave to appeal various decisions to the Supreme Court in late 2017. Chatfield then continued to advance the original legality question and sought judicial review of the Commissioner’s decision to issue the s.17 notices on the basis that they were issued pursuant to mistakes of fact and that the Commissioner failed to apply independent judgment or independently exercise her discretion in issuing the notices. The Commissioner claimed the defence of justiciability (the decision to issue the notices could not be one subject to judicial review), and in the alternative, that Chatfield had not established that she had exercised her statutory powers or duties unlawfully.
The High Court found in favour of Chatfield and quashed the 2014 s.17 notices. The legality of the Commissioner’s actions in issuing notices under s 17 and its related provision, s 16, can be the subject of judicial review proceedings, in this case, the DTA being part of NZ domestic law and consequently within the Courts of NZ jurisdiction – therefore making an assessment of whether or not statutory requirements contained in the domestic legislation had been met.
In this regard, on the basis of the “limited evidence” available, the Court was not satisfied appropriate enquiries had been made by the Commissioner (that the information was in regard to income tax, corporation tax, or inhabitant tax, or fiscal evasion; that any information exchanged under the DTA would only be used in relation to those taxes; and that the NTS had been unable to obtain the information in Korea) – note the judge’s comment – that the Commissioner had not been as candid in her conduct of this case as
might have been expected (she had the relevant facts and supporting documents in her possession, yet has not produced the evidence required).
Since the Court was not satisfied that the Commissioner correctly interpreted or applied either art 2 or art 25 of the DTA, or that she properly scrutinised the NTS’ request as required by law, it was appropriate to grant judicial review to Chatfield.
We now await the next chapter in this ongoing saga (whether IR will appeal), however I would suggest the decision is still useful to us all, considering the seeming ease and frequency the Commissioner is issuing s.17 notices of late…
Group Insurance Policies
IR has issued QB 17/10, a Question We’ve Been Asked, with respect to the income tax and FBT issues associated with group insurance policies taken out by an employer for the benefit of its employees.
The item covers term life and/or accident/medical cover insurance policies, where the employer owns the policy and pays the premiums, with any claim being paid to the employee, either directly or via the employer.
The premiums paid will generally be tax deductible for the employer but subject to FBT, with any subsequent claim pay-out not being income of the employer.
Whether the amount received by the employee is subject to taxation, will depend on whether it is a lump sum paid on the death of the employee, or a claim in respect of an accident/medical issue. The former is unlikely to ever constitute taxable income, whereas the latter will depend on whether the amount would be deemed income under ordinary concepts (s.CA 1(2)). If so, then the amount may still be exempt from tax under s.CW 34, if it relates to incapacitation for work and is not calculated with reference to loss of earnings.
Full text of QB 17/10 can be found here http://www.ird.govt.nz/resources/a/d/ad9ff7ce-97a6-46b1-b35a-7404fb9cd3c5/qb1710.pdf.
Group Loss Offsets
IR has issued SPS 17/03, a standard practice statement outlining acceptable group loss offset election practices. The statement comes with a disclaimer that it does not cover all aspects of Subpart IC of the ITA07, focussing instead on the consequences of specific events that can impact on a loss offset and how these should be addressed.
The main points of SPS 17/03 are:
- There are two methods for sharing losses – loss offsets via tax returns and loss offsets via subvention payment – the latter the Commissioner accepts that the term “payment” can mean more than just physical payment (e.g. the offset of an existing debt obligation the loss company has to the profit company).
- The loss amount to be offset does not need to be specified at the time of filing the election, but the amount must be fixed in a manner that binds the loss company when the election is filed, e.g. application of a formula.
- Late elections are permitted at the Commissioner’s discretion and in exercising this discretion she will be mindful of purpose of the loss offset regime and that a case need not be exceptional for the discretion to be granted.
- Part-year loss offsets are permitted provided the various requirements are satisfied, e.g. adequate part year accounts available for both entities.
- Subsequent amendments to loss/profit company tax positions can result in further loss offsets being permitted (loss/profit increased). Naturally it can also result in previous offsets being reduced if appropriate.
A full text of the SPS can be found here http://www.ird.govt.nz/resources/6/a/6a357132-b9e7-4161-9a4a-8b4dd55e2b8b/SPS+1703.pdf.
Richard Ashby BBus, CA, CPA PARTNER
Em: [email protected] Ph: +64 9 365 5532 Fx: +64 9 309 5260 Mb: +64 21 823 464
