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Unformatted text preview: ACIS 254: ACIS Introduction to Taxation Introduction
Lectures 33, 34 and 35: Investigations, Dispute Resolution and Record Keeping Record
Department of Accounting & Information Systems, University of Canterbury, Christchurch Christchurch 1 Outline of Lectures - Investigations, Dispute Outline Resolution, Record Keeping Resolution, • Tax Administration
Integrity of tax system Care and management • Investigations
Audits Assets Accretion method Key powers of the Commissioner Recording interviews Secrecy
2 Outline of Lectures - Investigations, Dispute Outline Resolution, Record Keeping (continued) Resolution,
Privilege History of legal privilege What is privilege? Changes to privilege – non disclosure right for Changes tax advice tax The Investigation Process Business matters Private matters Areas of concern
3 Outline of Lectures - Investigations, Dispute Outline Resolution, Record Keeping (continued) Resolution,
Dispute Resolution Process Pre-assessment- six phases NOPA, NOR and Pre-assessmentResponses Exceptional Circumstances Exceptional Conference & Disclosure Adjudication Time Limits Challenges: TRA or High Court Summary of requirements Summary Payment of tax in dispute Penalties Record keeping
4 Tax Administration
• • • •
Relationship between the state and the individual. Intensely procedural. Principal statute is Tax Administration Act 1994. Integrity of the tax system
– Includes perceptions of integrity. Rights – Rights of taxpayers – liability determined fairly, impartially and according to the law. impartially • Care and management s 6A TAA ‘collect over Care time the highest net revenue practicable within the law’. law’.
With – With regard to resources, promoting compliance and compliance costs. compliance 5 Investigations
Audits – important for compliance. Asset accretion method – used to calculate the amount Asset of tax that should be paid. of Key powers of Commissioner contained in TAA. • Full and free access to inspect books, documents and Full property: s. 16. property: • Reasonable assistance must be provided. • Information must be supplied Information on request: s. 17. on • Books may be removed for Books inspection and copying. inspection • Examination under ss 18 & 19, Examination enforcement of court orders s 17A. enforcement
6 Investigations (continued)
Limitations on powers: 1. Authorisation to utilise the powers. Authorisation 2. No entry by force. 2. No 3. No seizure of materials. 3. No 4. Taxpayer entitled to legal advice & access to courts. 4. 5. Must be necessary or relevant to require production of 5. information or documents. information Offence: If obligations not met when under investigation.
7 Investigations (continued)
• Recording interviews
– – Secret recording not permitted. Copies of recorded interview will be available to Copies interviewee. interviewee. – Can decline the recording of a voluntary interview. – – – – Obligation on IRD officers to maintain secrecy. Confidentiality. Punishable offence. Applies after officer has left the Department.
8 • Secrecy Privilege
• Legal privilege. Statutory privilege for lawyer's Legal
advice (written & oral, client or lawyer), s. 20 TAA 1994. • Common law litigation privilege includes opportunities for includes protection from disclosure. • Position of in-house legal counsel & Position lawyers not in legal practice? lawyers
9 What is Privilege?
• Based on common law principles where confidential Based • • • •
communications may be kept confidential. Agent as intermediary: privilege Agent may attach to information between lawyer and client via agent. Does not exist for solicitor's trust Does account records. account Does not exist where communication brought into Does existence to commit or facilitate illegal or wrongful act. existence Privilege may have to be determined in court as to Privilege whether it may attach to certain communications. whether
10 10 Non-disclosure right for tax advice
• Communications between advisors and clients will be Communications
privileged if they have the main purpose of giving or receiving tax advice on tax laws. receiving • Factual information included in advice will have to be Factual
disclosed to IRD in the form of statutory declaration. disclosed • Clients can waive non-disclosure right. • Also exclusions for information that supports Also
financial statements and tax returns, non tax advice such as valuation and investment advice, and matters relating to debt recovery and fraud. relating 11 11 The Investigation Process - Business Matters • • • • • • • • • Responsibility for tax returns. Responsibility History of business affairs. Treatment of income / receipts / sales. Cash receipts, treatment of bankings, cash Cash on hand. on Credit sales, accounts receivable / debtors. Goods for own use. Accounts payable/creditors. Stock and work in progress. Wages, and motor vehicle expenses.
12 12 Private Matters & Areas of Concern
• Personal circumstances. • Assets (cash), cash accumulations, assets (non• • • • • • • • •
cash). Capital or non-taxable receipts, liabilities. Capital Personal expenditure (living expenses, Personal gambling). gambling). Property transactions (acquisitions and sales). Goods for own use. Motor vehicle usage (private / business). Stock valuations, cash management. Travel / entertainment (private / business). Repairs / maintenance, fringe benefits. Interest deductions (funding what activities?), Interest legal fees. legal 13 13 New Dispute Resolution Process
• Dispute resolution process from 1/10/96 aims to:
1. Get assessment as correct as practicable first time. 1. 2. Steps designed to resolve dispute pre-assessment. 2. 3. Disputes dealt with fairly, efficiently and 3. expeditiously. 4. Notice of Proposed Adjustment from CIR / taxpayer. 4. 5. All ‘cards on the table’ Conference All between IRD and taxpayer. between 6. Adjudication Unit within IRD to initially 6. handle disputes before judicial process is invoked. handle 7. Reduce potential litigation and remove Reduce unnecessary compliance costs. unnecessary 14 14 Six Phases of New Dispute Six Resolution Process Resolution
1. Pre-assessment - issue of a NOPA and NOR, and Pre-assessment responses to each. responses 2. Conference. 3. Disclosure Notice. 4. Adjudication and review. 5. Issue of assessment / reassessment. 6. Litigation - Case to TRA or the High Court. High
15 15 Notice of Proposed Adjustment (NOPA)
• Initiates tax dispute. • Informs respondent of proposed adjustments to Informs •
person’s tax position and reasons for the adjustments. person’s Usually issued by CIR after completion of audit. Note: • Taxpayer can initiate or amend assessment. CIR not required to issue NOPA in certain CIR circumstances. circumstances. • Not required for simple / obvious mistakes - CIR Not corrects. corrects.
16 16 Notice of Proposed Adjustment (NOPA) Notice (continued) (continued) •
1. 2. 3. 4. NOPA must contain: Adjustments proposed to be made. Statement of facts and law in sufficient Statement detail. detail. How the law applies to the facts. Include copies of all documents that Include the disputant is aware of at the time of filing the NOPA that are significantly relevant. relevant.
17 17 Response to a NOPA:
Response to NOPA: 1. Accept the proposed adjustments in writing. 2. Reject (all or in part) and file a Notice of Reject Response (NOR). Response 1. Do nothing - deemed acceptance. Note: Two months to respond.
18 18 Notice of Response (NOR)
• If reject NOPA, NOR must contain:
1. Facts or legal arguments in error in the Commissioner’s Facts NOPA. NOPA. 2. Why the facts or legal arguments in the Why Commissioner’s NOPA are considered to be in error. Commissioner’s 3. Facts or legal arguments relied on by the taxpayer. 4. How the legal arguments apply to the facts; and 5. The quantitative adjustments that result to the The Commissioner’s NOPA. Commissioner’s
19 19 Exceptional Circumstances: • An event beyond taxpayer’s control & thus An
provide a reasonable justification for not issuing NOR, NOPA, or not rejecting CIR’s NOR, within time limits. • An act / omission by taxpayer’s agent not An covered unless minimal, or statutory holiday included, was caused by an event beyond agent’s control, could not anticipate, & effect could not be avoided by following accepted organisation/professional conduct. organisation/professional
20 20 Once the Notice of Response has been received:
CIR can: 1. Accept in full & make appropriate adjustments. 1. Accept in part; outstanding issues go to conference. 3. Reject in full and progress to conference. 21 21 Conference
• Parties attend a conference to discuss and Parties
clarify the facts and issues. clarify • Legal representation permitted. • Encouraged but not mandatory. • If dispute unresolved after conference, If proceed to disclosure. proceed 22 22 Disclosure
• Aim to allow parties to ‘lay all their cards on the Aim • • • •
table’ and identify the nature and scope of dispute. table’ CIR initiates by issuing disclosure notice and CIR Statement of Position. Statement Taxpayer has 2 months to issue a Statement of Taxpayer Position. Position. Statement of Position advises facts, evidence Statement (available documentary evidence), issues and proposition of law relied upon by that person. proposition Evidence exclusion rule - limited to what is in SOPs.
23 23 Adjudication
• • • • •
Disputes unresolved go to impartial IRD officer Disputes (adjudicator) in Wellington to review the case. (adjudicator) Certain documents to be filed with adjudicator. Adjudicator’s conclusion - agrees with: Taxpayer - end of matter. - IRD no right to challenge. IRD CIR - Actioning officer issues assessment. CIR - if taxpayer wants to challenge, must file proceedings in TRA or High Court within 2 months of assessment date.
24 24 Challenge: TRA or High Court?
1. Question is one of law: • Either party may require challenge in High Court Either
2. Question is one of fact, or of mixed law and fact: 2. • Parties may agree on challenge going to High Court, or Parties apply to the court for such (s. 136 TAA) apply 3. Question of fact: Taxpayer require challenge in TRA Question • Pre-hearing is held to: 1. Ascertain an estimate of time required Ascertain 2. Define the issues to be determined 2. 3. Direct any amendments to the case, and 4. Determine manner for evidence to be considered.
25 25 Payment of Tax in Dispute
• Tax not in dispute must be paid by normal due Tax • • • •
date. Tax in dispute (until 1/4/03): Taxpayer had to pay one-half by specified due Taxpayer date, defer balance, other implications. Tax in dispute (from 1/4/03): None of the tax in dispute must be paid by the None specified due date, unless specific concerns etc. etc.
26 26 Small Claims Jurisdiction of TRA
• • • • •
Taxpayer can elect in NOPA to have matter Taxpayer heard. heard. Limited claims: - tax up to $30,000. - no legal issues of precedent. precedent. Decisions non-precedential, not published and Decisions no right of appeal. no $400 filing fee payable - a chance for day in $400 court. court. Note: Can appeal from general jurisdiction of TRA to High Court, then to Court of Appeal, and with leave, to Supreme Court (was Privy Council). Council). Judicial review process available – procedural • issues. issues. 27 27 Penalties
• Civil penalties imposed by Inland Revenue • Shortfall penalties
– Not Taking Reasonable Care – Unacceptable Tax Position – Gross Carelessness – Abusive Tax Position – Evasion
28 28 Record Keeping Requirements
Key requirements: 1. Source documents must be kept. 2. Filing method for easy access. 3. Maintaining books of account. 4. Use of source documents to collect information. 5. Basic business tax information. 6. Using book keeping records to meet tax obligations. • Records need to be kept for tax and business purposes, Records
such as preparing accounts. such
29 29 Key Points:
• • • • • • • •
New Zealand Taxation Chapter 20. New Note: flowcharts on dispute resolution process CIR has wide-ranging investigation powers, although taxpayers CIR may invoke legal privilege. may Investigation process involves examining business and private Investigation matters: note critical areas. matters: From 1/10/96 new dispute resolution process, which attempts From resolution before issuing assessment. resolution Conference and adjudication phases occur within IRD. TRA, High Court, Court of Appeal and Privy Council / Supreme TRA, Court; also small claims jurisdiction of TRA. Court; Note also changes to tax in dispute requirements & tax privilege.
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- Spring '09