Hardie v The Commissioner of Inland Revenue

JurisdictionNew Zealand
CourtCourt of Appeal
JudgeMiller J
Judgment Date28 September 2011
Neutral Citation[2011] NZCA 492
Docket NumberCA68/2011
Date28 September 2011

[2011] NZCA 492



Wild, Ronald Young and Miller JJ


John David Hardie
The Commissioner of Inland Revenue

A J Forbes QC and P A Robertson for Appellant

P H Courtney and TKS Gillbanks for Respondent

Appeal from a High Court decision striking out the appellant's application for judicial review of the respondent's default assessments of income tax and GST — appellant was a patent attorney — failed to file GST returns since 2001 and income tax since 1991 — default assessments issued with 10% added for each of subsequent assessments — whether default assessments genuine — whether respondent entitled to add 10%.

Held: It was arguable that the assessments were not genuine exercises of judgment by the Commissioner for several reasons. First, it appeared the Commissioner had made the GST default assessments without allowing for input credits or zero-rated transactions. The previous returns by H had showed there had been substantial input credits and zero-rated supplies which had resulted in GST refunds. There was no evidence the Commissioner had considered H's actual deductible expenses, to the extent that they could be ascertained from the historic GST returns and PAYE records.

Secondly, it appeared that the Commissioner had added 10% to each succeeding monthly default assessment not as a genuine estimate of H's liability, but to encourage him to file returns. That practice would only act as an incentive if, as time went on and the increases compounded, the assessments were likely to exceed his actual liability. The Commissioner could not point to any justification for it in the legislation, which contained other mechanisms to encourage compliance.

Thirdly, the default income tax assessments relied upon the monthly compounding increase in GST assessments. These too arguably had not represented the Commissioner's genuine judgment as to H's actual income tax liability.

Fourthly, it was arguable that the allowance of 20% made for expenses when assessing income tax had not taken into account the evidence the Commissioner had about H's expenses.

This decision did not preclude the Commissioner from pursuing an allegation that the proceeding was an abuse of process, as held by the High Court. The record of the history of previous litigation was incomplete.

Appeal allowed. The application for judicial review should be heard. It was for the HC to decide whether the assessments were susceptible to being set aside.

  • A The appeal is allowed.

  • B The High Court order striking out the application for judicial review is set aside.

  • C The respondent is to pay the appellant's costs as for a standard appeal on a band A basis with usual disbursements. Allowance for one counsel only.

  • D The respondent is also to pay the appellant's costs in the High Court of the Commissioner's strike out application, on a 2B basis with disbursements fixed by the Registrar failing agreement.


(Given by Miller J)


Mr Hardie appeals against a High Court judgment in which was struck out his application for judicial review of the Commissioner's default assessments of income tax and goods and services tax (GST). 1


The single substantive question is whether the default assessments were genuine assessments, as this Court put it in Westpac Banking Corporation v CIR. 2 If they were not, judicial review is available and the High Court might, in the exercise of that jurisdiction, excuse Mr Hardie his failure to follow the statutory disputes procedure which taxpayers must ordinarily employ in such cases. 3

The narrative

Mr Hardie's tax affairs are a mess, and they have been so for many years. He has failed despite repeated encouragement and enforcement action to remedy matters by filing returns. We were given a detailed chronology but the parties sensibly included in the record few of the documents relevant to it, relying primarily on the statement of claim and two brief affidavits. For our purposes a brief summary will suffice.


Mr Hardie is a patent attorney who has practised in Auckland since 1969. He is liable to account for both income tax and GST, but he says he has had difficulties with GST ever since that tax was introduced. He deposes to difficulties with accountants and software, and he claims he has suffered stress and various other difficulties. None of this can possibly excuse the fact that Mr Hardie filed his last (presumably monthly) GST return for the period ended 31 January 2001, or his failure at any material time to file an income tax return. It appears that his last income tax return was filed as long ago as 1991.


Mr Hardie did file GST returns for the years ended 31 March 1998, 1999 and 2000, and for the period to 31 January 2001. Apart from those GST returns, the Commissioner has had available to him since 2000 only Mr Hardie's PAYE records which showed how much had been paid as wages to his staff. On the pleading, the Commissioner is said to have had the latter records for the years ended 31 March 1998 to 31 March 2003 inclusive.


The Commissioner issued a default GST assessment on 10 July 2001 for the month ended 30 April 2001. Thereafter default assessments were issued on a monthly basis. The last of these default assessments appears to have been made for the monthly period ended 30 April 2006.


The Commissioner also issued default income tax assessments for the years ended 31 March 1991 to 31 March 2003.


From time to time Mr Hardie has made relatively modest payments, which the Commissioner has credited to his GST liabilities. The total said to be payable as at 10 May 2010 was $21,766,037.41, of which $19,387,081.68 comprised income tax, $2,372,619.73 GST, and the balance costs associated with obtaining judgment against Mr Hardie. Those sums include penalties and interest.


Remarkably, Mr Hardie still has made no attempt to establish his actual tax liability although he complains that the Commissioner's assessments are grossly excessive. He asserts that his failure to file returns is excusable because until relatively recently he did not know on what basis the assessments had been made, and he complains implausibly that he was unaware until 2006 that he must employ the statutory disputes procedure for challenging assessments, believing that he could file returns when he eventually got his affairs in order. We observe that he had been convicted in 1998 and 2000 of failing to file income tax returns, and he had also failed to file returns when directed to do so under s 17A of the Tax Administration Act 1994.


Relying on the default assessments, the Commissioner in 2006 sued Mr Hardie in debt, eventually obtaining judgment after trial in the District Court at Waitakere on 4 March 2009. In the course of his judgment, Judge Recordon held that the Commissioner was entitled to rely on default assessments, Mr Hardie having failed to file returns or use the disputes procedure, but noted that the District Court lacks jurisdiction to review the Commissioner's exercise of his powers of assessment. 4


Mr Hardie then took steps to have the Commissioner's assessments judicially reviewed, claiming that he had not previously appreciated he might do so. An application for review was filed on 11 June 2007. The Commissioner moved to strike it out. Mr Hardie discontinued the proceeding on the day before the scheduled hearing.


Mr Hardie next appealed the District Court judgment to the High Court. On 19 March 2010 Stevens J substantially dismissed the appeal, and subsequently dismissed an application for leave to appeal to this Court, which in turn dismissed, on 23 August 2010, an application for special leave to appeal. 5 It is not suggested that the appellate judgments dealt squarely with the issue that concerns us here. On the contrary, the principal question appears to have been whether Mr Hardie was liable, as tangata whenua, to pay tax at all. Both Stevens J and this Court noted that a second application for judicial review had by then been filed, and this Court noted that the new application for review alleged errors in the Commissioner's tax calculations which had not been raised before Stevens J. 6


Mr Hardie had filed the second application for review on 11 March 2010. The Commissioner moved to strike it out as both disclosing no reasonable cause of action and an abuse of process. On 23 December 2010 Keane J granted the strikeout application in the judgment presently under appeal.


Bankruptcy proceedings await the disposition of this appeal.

How did the Commissioner come to his assessments?

We must begin by establishing on what basis the Commissioner is said to have issued the default assessments.


The evidence before us about the Commissioner's decision-making is sparse, the Commissioner having decided that for strikeout purposes only the barest summary was needed. The evidence takes the form of an affidavit by Kathleen Gavin, a Return and Debt Collection Officer with the Commissioner's National Collections Enforcement Department. She deposes that the default assessments were “based on financial information contained in the plaintiff's previous months GST return, with 10 per cent added.” She attaches a schedule of the dates on which the default assessments were issued.


Although the record is of very little assistance on this point, it was common ground between counsel that the first default assessment is likely to have been based on Mr Hardie's last filed GST return, which was for the period ended 31 January 2001, and that the Commissioner appears to have made that assessment without allowing anything for input credits or zero-rated transactions. The previous returns filed by Mr Hardie showed that there had been substantial input credits and...

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1 cases
  • Hardie v The Commissioner of Inland Revenue Coa
    • New Zealand
    • Court of Appeal
    • 28 September 2011
    ...COURT OF APPEAL OF NEW ZEALAND CA68/2011 [2011] NZCA 492 BETWEEN JOHN DAVID HARDIE Appellant AND THE COMMISSIONER OF INLAND REVENUE Respondent Hearing: 20 September 2011 Court: Wild, Ronald Young and Miller JJ Counsel: A J Forbes QC and P A Robertson for Appellant P H Courtney and TKS Gillb......

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