Taxwise: Act sooner, not later on tax assessments

By DENHAM MARTIN

What is the story with Inland Revenue's attempting to place a company into liquidation for the non-payment of taxes that have been assessed against it?

J. D. Milford.


Once Inland Revenue has issued a tax assessment against a taxpayer there is a regimented procedure that the taxpayer must follow in order to object to the assessment. This procedure is set down in legislation and requires the objection to be in a prescribed format and to be made, and followed up, within prescribed timeframes. These timeframes can usually be extended only in "exceptional circumstances."

Tax assessments are deemed by the tax legislation to be correct and incapable of being objected to in any other way, with the only real exception being procedural matters of which taxpayers can seek a judicial review.

Consequently, if a taxpayer does not challenge an assessment in the correct manner, then Inland Revenue is entitled to pursue payment of the debt.

Inland Revenue has the standard creditor remedies available to it in pursuing recovery of the debt. Additionally it has a number of special debt-collecting advantages, such as intercepting money due to the taxpayer and having a higher priority over standard creditors for certain types of tax debts.

Inland Revenue is, therefore, able to put an individual taxpayer into bankruptcy, or a corporate taxpayer into liquidation. Furthermore, at that stage Inland Revenue is in the particularly strong position of pursuing the recovery of a debt that the taxpayer is incapable of disputing. Indeed it is not uncommon for Inland Revenue to be the creditor initiating insolvency proceedings against impecunious taxpayers.

Therefore, if you make the mistake of ignoring an assessment on the basis that you can challenge it at the later stage of insolvency proceedings, then you have lost the game before taking to the field.

However, in some circumstances taxpayers are able to obtain relief from unpaid tax assessments under the serious hardship provision or by negotiating an instalment payment plan with the debt recovery division of Inland Revenue. But these actions must be taken before the insolvency proceedings come before the court.

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