BEACH ROAD COMMERCIAL LIMITED v THE COMMISSIONER OF INLAND REVENUE [2015] NZHC 2205

BEACH ROAD COMMERCIAL LIMITED v THE COMMISSIONER OF INLAND REVENUE [2015] NZHC 2205 [11 September 2015]IN THE HIGH COURT OF NEW ZEALANDCHRISTCHURCH REGISTRYCIV-2015-409-110[2015] NZHC 2205BETWEEN BEACH ROAD COMMERCIALLIMITEDApplicantAND THE COMMISSIONER OF INLANDREVENUERespondentHearing: 1 September 2015Appearances: N Russell for ApplicantD Tasker for RespondentJudgment: 11 September 2015JUDGMENT OF DUNNINGHAM J[1] On 16 February 2015, the Commissioner of Inland Revenue (the Commissioner) served a statutory demand on Beach Road Commercial Limited (the applicant) for $53,369.81 in unpaid GST, plus penalties and interest.[2] The statutory demand was met by this application to have it set aside. The following grounds were listed in the application:(a) the debts are disputed;(b) it was premature to issue the statutory demand as the GST assessments in question were subject to an investigation which would affect the tax debt of the applicant;(c) GST refunds are available to a related company which could be usedto offset the applicant's debt;(d) the applicant is solvent;(e) the applicant is part of a group of companies that has been adversely affected by a flawed tax assessment issued by the respondent; and(f) the respondent has interfered with the business of the applicant to its prejudice.[3] A further ground emerged in the most recent submissions of the applicant. This is that the statutory demand materially misstates the debt owing.[4] The Commissioner refutes all these grounds. She accepts that the debt has been reduced by the subsequent filing of GST returns which have resulted in refunds to the applicant, but says that the assessments comprising the debt are now unable to be disputed by the applicant and the debt, which is now approximately $38,000, remains unpaid. It is appropriate that either the statutory demand be complied with, or that an application to liquidate the applicant company be made in reliance on the unsatisfied statutory demand.Background to the issue of the demand[5] The applicant owned a commercial property in Beach Road, Kaikoura. Most of the property was leased to commercial tenants but it contained a small residential flat that was rented out as domestic accommodation from time to time.[6] The applicant was registered for GST as a commercial landlord. Commercial rental is subject to GST but residential rental is exempt. However, the applicant did not reflect that in its GST returns. It claimed the full purchase price of the property as an input for GST purposes (which the Commissioner is now statute-barred from re-assessing). It also omitted to make the necessary adjustments in subsequent GST returns. As a result, it returned GST on its residential rental income and claimed GST on expenses relating to that income.[7] When that omission was identified, the Commissioner and the applicant agreed it meant the GST assessments were wrong but the parties did not agree as to how the assessments should be adjusted to reflect the partial residential use.[8] The problem came to light during an investigation into the tax affairs of the applicant and other associated companies which had commenced in May 2012. When the investigation commenced the applicant had a number of outstanding GST returns. During the audit process, documents were obtained by the Commissioner that included four unsigned GST returns for the applicant relating to periods in 2012. These were filed by the Commissioner on behalf of the applicant in late 2013, but the other returns remained outstanding.[9] Between February 2011 and May 2014, the Commissioner sent a number of letters to the applicant requiring the outstanding returns to be filed. By the time Mr Eric Robinson, an investigator for the Inland Revenue, took over the audit of the applicant in February 2014, there were 36 GST returns outstanding for the period between 1 July 2009 and 31 March 2014.[10] Thirty-four of those returns were eventually filed by the applicant's tax agent,Mr Peter Eastmure, in June 2014. It was at that point that Mr Robinson picked up the problem with the GST returns not reflecting the exempt residential supplies. On discovering the residential unit had been rented out, Mr Eastmure accepted that there was a need for adjustment for exempt GST supplies as there had been an overpayment by the company of GST on the residential income, but an over-claim by the company on the expenses relating to the residential income. In a letter dated 5 November 2014, Mr Robinson noted that the adjustments would be "relatively minor" and the Commissioner would therefore only require tax returns from after 1April 2011 to be reviewed and corrected. He urged the applicant to get back to him by 21 November 2014 as he wanted "to close the case".[11] By late 2014, three GST returns were outstanding. Two were emailed by Mr Eastmure to Mr Robinson on 23 December 2014. Mr Eastmure noted that there was still some adjustments which were required on the returns but asked that they be filed nonetheless to reflect the residential use of the property.[12] When Mr Robinson was supplied with the work papers for these two returns on 22 January 2015, he realised that they both reflected a 10 per cent adjustment to income and expenses to reflect the residential use of the property. This seemed to beat odds with Mr Eastmure's email to Mr Robinson on 31 October 2014 where he said "I suggest we apportion 18.9 per cent of expenses to non GST and identify the rentalincome associated with the apartment and make any GST adjustments necessary?",and which Mr Robinson had confirmed, in reply, was acceptable to the Commissioner. Mr Robinson queried the basis for the 10 per cent adjustment as, in his view, the 18.9 per cent adjustment was appropriate, because it reflected the relative proportion of the total floor area of the building that comprised the residential accommodation.[13] By late January 2015, the applicant's tax debts stood at $53,369.81.1 The debt was a result of GST returns filed years late, and, even then, filed only as a consequence of persistent reminders by the Commissioner. Up to this point theCommissioner had postponed collection action. However, given the Commissioner'sview that the bulk of the debts could not be disputed other than the returns just recently supplied, and where Mr Robinson's current review would likely increase the applicant's debts, it was determined it would be appropriate to issue a statutorydemand. Thus a statutory demand for what the Commissioner considered were now indisputable tax assessments, was served on 16 February 2015.[14] The statutory demand covered the GST periods to March 2013 and a default assessment for the September 2014 period. It did not include the emailed GST returns for 30 September 2013 or 31 March 2014, as those had not yet beenprocessed by Inland Revenue's filing system.[15] After service of the demand, the applicant's September 2013 and March 2014returns were re-filed electronically on 9 March 2015, along with the September 2014 return. In total, the three returns claimed a GST refund of $9,080.53.1 Being $53,319.81 relating to unpaid GST plus penalties and interest and $50 in income tax.[16] Mr Robinson allowed the applicant the benefit of the refunds pending his review of them, but he requested that the applicant provide documents to support its refund claims.[17] The GST refunds were applied to the applicant's debt in accordance with theprovisions of the Tax Administration Act 1994 (the TAA). This meant that the credits were applied first to interest outstanding on the period it applied to.2 Afterapplication of the refunds, the applicant's debt was $38,655.19.[18] The time to comply with the statutory demand expired on 5 March 2014 without payment being made.[19] On 31 March 2015, a related entity to the applicant, Keung Developments Limited (KDL), asked the Commissioner to amend its GST return for December 2007. KDL and the applicant have a common director, Ms Yvonne Ballantye and, since 2 March 2015, they also have the same shareholder, Keung Development Trustee Limited. Thus, under s 2A of the Goods and ServicesTax Act 1985 (the GST Act), the companies are "associated persons" and GSTrefunds can be transferred between such persons when the person entitled to the refund so authorises.3[20] The Commissioner accepts that KDL could authorise transfers of refunds to the applicant. However, although Mr Eastmure deposed that KDL would be filing a notice of proposed assessment (NOPA) claiming GST refunds of approximately $120,000 for KDL, that has not occurred. The Commissioner says she would oppose any such proposal and KDL is well out of time to file any NOPAs in respect of its GST assessments.4[21] Furthermore, although the Commissioner is empowered to amend assessments at any time under s 113 of the TAA, the Commissioner by a decision made in April 2015 declined to reassess the GST return for the period ending 312 Tax Administration Act 1994, s 120F(1).3 Section 141(7).4 The "response period" specified in s 89AB of the TAA for a tax paper-initiated NOPA is 4 months.December 2007 in the sum of $62,500 as sought by KDL. However, in an email dated 24 July 2015 she has subsequently agreed to reconsider that decision, and have"someone with fresh eyes" review the s 113 application.[22] Finally, on 17 July 2015, the applicant applied to the Commissioner under s 113 of the TAA for reassessment of its GST returns and also made an associated application for remission of penalties and interest.5[23] The key points made in the application were that:(a) the appropriate calculation for adjustments to reflect the residential use of part of the property was on the basis of income and total rentable space, including the outdoor areas, which would bring the percentage down to six per cent, although the applicant conceded that 10 per cent was a reasonable compromise;(b) the GST overpaid on the residential income, using this adjustment, totalled $2,342 dating back to 2009;6(c) the overpaid GST would have a substantial flow-on effect in relation to late payment penalties and interest; and(d) if credits from the GST returns filed on 22 January 2015 are applied to the adjusted GST assessments, and an adjustment made for an unclaimed GST credit for insurance paid between April 2010 and March 2011, the core GST figure should only be $3,545.[24] On 25 August 2015, the applicant was advised that its application for a reassessment of its GST returns and remission of interest and penalties was declined. The reasons for declining to make the reassessments requested included:(a) the request would require further investigation before it could be accepted, noting, for example, that no input adjustment was being5 Under ss 183A, 183ABA and 183D of the TAA.6 Although acknowledging GST claimed on expenses would also have to be subtracted.proposed to account for the exempt supply content of the initial capital acquisition cost, and GST adjustments on residential expenditure had been incorrectly excluded when its dwelling was available to rent;(b) the applicant has a history of non-compliance with its tax obligations;(c) there had been no reasonable explanation offered for the fact the applicant had only filed two of the 63 GST and income tax returns it had been required to file since the applicant registered with Inland Revenue, by the due date;(d) the issue of the exempt supply discrepancy had been raised with theapplicant's tax agent within the four month period of time in which the taxpayer could have filed a NOPA under s 89AB(3) of the TAA and no attempt was made to correct the errors within the response period;(e) the applicant's accounting systems appeared to be "artificially complicated" and were apparently causing delays in the applicant'scompliance with tax law;(f) the applicant had not been able to respond to requests for substantive documentation despite its obligation to hold documents in accordance with s 20(2) of the GST Act; and(g) the failure to include input tax adjustments as an offset against the requested output tax adjustments exaggerated the adjustment soughtin the applicant's favour. If the adjustments were calculated includingthe exempt supply content of the original GST claim, the net adjustment would be less than $500 and it was not an efficient use ofthe Commissioner's resources to adjust 26 GST assessments for suchan amount.[25] The applicant's tax agent has since written to Mr Robinson asking whatadditional information would be required to revisit the request and suggesting "that maybe a review by an independent person would benefit".[26] The day before the hearing, as proof of its solvency, the applicant placed $38,000 into the trust account of the accounting firm Deloitte, to be held on trust pending the outcome of these proceedings.The relevant statutory provisions[27] The application is made under s 290 of the Companies Act 1993. Section 290(4) contains the relevant grounds on which such an application may be granted. It provides:(4) The Court may grant an application to set aside a statutory demand if it is satisfied that—(a) there is a substantial dispute whether or not the debt is owing or is due; or(b) the company appears to have a counterclaim, set-off, or cross- demand and the amount specified in the demand less the amount of the counterclaim, set-off, or cross-demand is less than the prescribed amount; or(c) the demand ought to be set aside on other grounds.Substantial dispute as to whether the debt is owing[28] The first ground in s 290(4) is that there is a substantial dispute over whether the debt is owed.[29] As was said in Taxi Trucks Ltd v Nicholson:7The applicant must show a genuine and substantial dispute as to the existence of the debt, and that it would be unfair – as it usually would be – to allow that dispute to be resolved by the Companies Court rather than by action commenced in the usual way.The Court does not, of course have to resolve that dispute, but merely to determine whether there is a substantial dispute as to whether or not the debt is due.87 Taxi Trucks Ltd v Nicholson [1989] 2 NZLR 297 (CA) at 299.[30] In relation to tax assessments, a question as to the validity of the tax assessment (as opposed to its correctness which could only be raised inside the objection procedure) was held to constitute an arguable dispute in circumstances where there was evidence that the Commissioner had failed to have regard to relevant and available information, and where "the liability of the applicant may besubstantially reduced as a result of the hearing before the Tax Review Authority".9In that case it was held that:10 the effect of permitting the respondent to proceed to liquidation proceedings would be, if successful, to prevent the applicant from prosecuting its objections or, if unsuccessful, to distract and/or inhibit the applicant from prosecuting its objections.Counterclaim, cross-demand or set off[31] Alternatively, the application must establish under s 290(4)(b) that it has a reasonably arguable counterclaim, cross-demand or set-off. In this case the refund asserted to be owed to KDL is advanced as setting off the debt owing.Other grounds[32] Finally the Court has a residual discretion under s 290(4)(c) to set the demand aside on other grounds where that is required to do justice between the parties. As Tipping J indicated in Commissioner Inland Revenue v Chester Trustee Services Ltd,the exercise of the discretion comes down to the Court's judgment as to whether thecreditor's prima facie entitlement to liquidate the company is outweighed by some factor making it plainly unjust for liquidation to occur.11Issues to be determined[33] In the circumstances which have arisen, and applying the relevant legal principles, I must decide:(a) Is there a substantial dispute as to whether the debt is owing?8 Androcles Investments Ltd v Highway Publications Ltd HC Christchurch M455-00, 14 February 2001.9 Sunrise Auto Ltd v Commissioner Inland Revenue (1998) 18 NZTC 13,600 (HC) at 13,605.10 At 13,605.11 Commissioner Inland Revenue v Chester Trustee Services Ltd [2003] 1 NZLR 395 (CA) at [3].(b) Is another company due a refund that could be used to offset the applicant's GST debt?(c) Are there other residual grounds which warrant the demand being set aside, including:(i) the evidence that the applicant company is solvent;(ii) the assertion that debt was overstated in the demand; or(iii) because of the way the Commissioner has dealt with:1. the associated company KDL; and2. the applicant's business.Is there a substantial dispute?[34] The applicant acknowledges that the onus is on it to demonstrate a "fairlyarguable basis upon which it is not liable for the amount claimed".12 The applicant also acknowledges that it is no longer able to dispute its GST assessments under pt 8 of the TAA due to the lapse of time. However, the applicant still says that if the credits Mr Eastmure has identified (that should have been claimed earlier) are applied, the core GST debt was only $3,545. Pursuant to directions made by Associate Judge Matthews on 15 June 2015, it has now paid $3,000 to the IRD.13 Asa consequence of this payment, and the recent GST refund, the applicant's view isthat all core GST owing has now been paid and the only amount which remains unresolved and disputed is the total of penalties and interest which, it argues, should be fully remitted.[35] However, the applicant's stance overlooks the fact that, first, the Commissioner does not accept that GST has been overpaid on the returns inquestion. Mr Robinson's view is that it has been underpaid, but as the amounts in12 Eastgate Real Estate Ltd v Walker (2001) 15 PRNZ 308 (HC) at 315.13 Beach Road Commercial Ltd v Commissioner of Inland Revenue HC Christchurch CIV-2015-409-000110, 15 June 2015 at [7](b).question were minor, the investigation of those GST periods was ceased for"resourcing reasons".[36] The next issue is that, at the time of filing this application, the applicant was seeking an adjustment under s 113 of the TAA to reduce its core debt to $3,545. The applicant has since made such an application, and the Commissioner has declined it for the reasons set out in [24] above.[37] However, that has not deterred the applicant. It says that it still has two more options. First, it says it is seeking a review of the Commissioner's decision todecline its s 113 application by an independent person with no prior affiliation to the tax affairs of the applicant. In support of this being likely, it notes that this was"previously agreed to by the respondent in relation to the s 113 application made by KDL".[38] The second option raised by the applicant is the possibility of seeking judicialreview of the Commissioner's refusal of the s 113 application. While the applicant notes it is "mindful that an application for judicial review against the respondent without proper foundation will amount to an abuse of process", it says it needs afurther four weeks "to consider the basis on which the respondent's decision on theapplications were made" and to determine whether there are grounds for review.[39] I accept that there was a dispute over the extent of the applicant'sGST liability, largely as a consequence of its failure to adjust for the residential component of its business activity. There was also, therefore, a dispute as to the extent of penalties and interest that were added to the tax debt, if the amounts owed were less than the Commissioner relied on for those calculations.[40] However, the real issue is whether the applicant has exhausted its avenues for seeking a readjustment of the tax debt. There is no doubt that the limitation period for the statutory NOPA procedure has expired. The s 113 process (and associated application for remission of penalties and interest) has also now run its course and has been unsuccessful.[41] In Tannadyce Investments Ltd v Commissioner of Inland Revenue, the Court held that in similar circumstances, where Tannadyce was statute-barred from invoking the statutory challenge process, it could only establish there was a"substantial dispute" about the debt if it had an "arguable case" that its judicialreview proceedings may succeed or if there were "other grounds" for setting asidethe statutory demand.14 The applicant is in a similar position.[42] I do not consider that the possibility that the applicant could persuade the Commissioner to revisit her decision to decline the s 113 application provides such grounds. Mr Russell focused on the fact that the Commissioner had agreed to review the previous s 113 application for KDL, and that the review would be done bysomeone "who has not been exposed to the history and various business activitiesassociated with Mr Keung or Mrs Ballantyne", as justifying the possibility that the applicant could persuade the Commissioner to undertake a further independent review of its application.[43] However, this is not a circumstance where there is still a statutory dispute process underway, as was the case in Sunrise Auto Ltd, and which could affect the tax assessment relied on for the statutory demand. The applicant has exhausted its statutory avenues for a reassessment and now pins its hopes on the possibility that it can persuade the Commissioner to review her comprehensive decision to decline a reassessment for the reasons given in the letter dated 25 August 2015.[44] A mere spectre of the possibility that the Commissioner might be persuaded to look at this again is not, in my view, sufficient to meet the test of there being "a substantial dispute", when the Commissioner has already comprehensively outlined her reasons for declining the application.[45] In support of this view I consider that the applicant's focus on the statement in the Commissioner's letter declining the reassessment namely that "the request would need further investigation before it could be accepted", has been taken out of context. What is said in the balance of paragraph [6](a) of the letter is that the Commissioner believes there are claims for GST refunds which have been made14 Tannadyce Investments Ltd v Commissioner of Inland Revenue [2010] NZCA 233 at [18].which relate to the residential portion of the use of the property, including the initial acquisition cost, which have not been provided to Inland Revenue. These would have a bearing on whether the adjustments claimed in the applicant's favour wouldsurvive the reassessment process. In other words, the further investigation which would be required relates to factors which would reduce the applicant's claim.[46] The suggestion that an application for judicial review of the Commissioner'sdecision may follow is even less convincing as evidence of a substantial dispute. A bald assertion that counsel has been instructed to "explore the grounds for a judicialreview application against the respondent and its actions in relation to the tworejected applications" does not amount to a substantial dispute.[47] The basis of a potential application for judicial review is not identified and it is well established that there is only limited scope to challenge such a decision on judicial review. The technical merits of the decision will not be considered. As was made clear in Tannadyce and Abbatis,15 and recently confirmed in Charter Holdings Ltd v The Commissioner of Inland Revenue,16 the taxpayer must be able to point to exceptional circumstances justifying that course. In Tannadyce, the Court held the proper approach was for the company to obtain interim relief in its judicial review proceedings, rather than applying for the statutory demand to be set aside on the basis it might get relief in judicial review proceedings that it has not even commenced.17 Here the exceptional circumstances are not identified. The evidence goes no further than saying counsel has been instructed to explore whether such grounds exist.[48] As a consequence I am not satisfied that the applicant has discharged the onus of demonstrating that there remains a substantial dispute as to the assessment of the tax owed, when it has exhausted the statutory procedures for reassessment, and where it is relying on a mere assertion that another avenue to challenge the assessment may arise.15 Commissioner of Inland Revenue v Abbatis Properties Ltd [2003] NZAR 155 (CA) and Westpac Banking Corporation v Commissioner Inland Revenue [2009] NZCA 24.16 Charter Holdings Ltd v The Commissioner of Inland Revenue [2015] NZHC 2041.17 Tannadyce Investments Ltd v Commissioner of Inland Revenue, above n 12, at [44].[49] I also reject the associated assertion that the demand was issued"prematurely". The demand was not issued until after the time for challenging theassessments though the NOPA procedure had expired and the demands related to sums owing for GST periods which were almost all at least two years prior to the issue of the demand, and where there had been extensive correspondence over the defaults and a warning that legal action would follow.Refunds due to an associated company which will offset the tax liability of the applicant[50] The argument that KDL was owed a significant refund, which exceeded the debt claimed by the Commissioner, was not pressed at the hearing. However, for similar reasons to those concluding that there is not a substantial dispute over theapplicant's tax debt, I reject the suggestion that there was an associated companywith a refund due that will more than offset the applicant's tax liability. When this application was made, KDL was seeking a s 113 reassessment to substantiate the claimed refund to that company. That reassessment has been rejected. At presentthere is no refund due to KDL which would offset the applicant's tax debt. The onuson the applicant is not discharged by a mere possibility that a refund will become payable to an associated company as a consequence of a further review of its s 113 application.Other groundsSolvency[51] The applicant has argued that it is solvent, and as proof of this, it has lodged $38,000 (being the approximate amount of the claimed debt) into the trust account of an accounting firm. Furthermore, Mrs Ballantyne deposes that the applicant is solvent, though I accept that her statement relies on the unsigned financial statements of the year ending 31 March 2014 and does not provide evidence as to the current financial status of the applicant. The applicant has since sold the building in question which was its main asset.[52] However, the point was taken no further by the applicant in the hearing and I accept the Commissioner's submission that the company's solvency is relevant onlyin extremely rare cases. As the Court of Appeal held in AMC Construction Ltd v Frews Contracting Ltd:18[7] We would not wish to rule out the possibility that the solvency of the company might constitute a standalone ground for setting aside a notice under para (c). However, we consider that such cases are likely to beextremely rare. If there is no dispute as to the company's liability, so that para (a) or (b) cannot be invoked, it is difficult to imagine the circumstances in which the company should be able to avoid paying a debt, merely by proving that it is able to pay that debt. If the debt is indisputably owing, then it should be paid. If the company simply refuses to pay, without good reason, it should not be able to avoid the statutory demand process by proving, at the statutory demand stage, that it is solvent. The demand should be allowed to proceed. If it is not met, and an application for liquidation is filed, in reliance on the presumption in s 287(a) that the company is unable to pay its debts, then the company will have an opportunity on the liquidation application to rebut the statutory presumption, which applies"unless the contrary is proved". There might be circumstances in which it isappropriate to advance the inquiry as to solvency to the s 290 stage, but that would require some particular circumstances not present in this case.[53] I accept that the reasoning in AMC Construction applies in this case and there is nothing which the applicant has pointed to which, in my view, justifies departing from it.Is there an adverse effect on the applicant from the tax assessment of KDL?[54] Another ground which was listed in the notice of opposition, but not pursued in oral submissions, was the argument that the applicant had been adversely affectedby a "fatally flawed tax assessment" issued to KDL by the respondent. The affidavit evidence of Mr Eastmure which accompanied the notice of opposition did not expand on this. However, Mr Eastmure's affidavit in reply deposed in a generalised way, to the time-consuming nature of the job of getting the accounts of the applicant, and of other companies in the group, in order. He also identified the resources which the applicant and his firm have put into doing that. He also suggested that he wasencouraged to focus on the "main outstanding litigious matters" such as KDL'saffairs, and that the Commissioner would be more accommodating about the issues with some of the other members of the group of companies, such as those arising with the applicant.18 AMC Construction Ltd v Frews Contracting Ltd [2008] NZCA 389, (2008) 19 PRNZ 13 at [7].[55] However, I accept that this evidence is not strictly admissible, primarily because it is not evidence in reply and there are elements of hearsay evidence in it.[56] Even if it were admitted, it does not satisfy me as amounting to evidence that would justify me exercising my discretion under s 290(4)(c). The overall impression I gained from the evidence filed was that the applicant, and other companies in the"group", had seriously neglected their obligations to meet their tax liabilities over a number of years. Significant latitude was afforded to the applicant and the other companies in the group, having changed their accountants, to allow them time to resolve the tax problems of the various companies. Deadlines came and went without obligations being met. The Commissioner eventually sought to bring matters to a head by the issue of a statutory demand. While the Commissioner appears to accept that its earlier assessment in respect of KDL was seriously flawed, she has revisited that some time ago. There is nothing in the evidence which explains to me why those past events in relation to KDL make it unjust to now insist that the applicant comply with its obligations to pay tax as assessed.Has there been deliberate interference with the applicant's business to its prejudice?[57] Again, while this ground was provided in the notice of opposition, it was not elaborated on oral submissions.[58] The only evidence which seems to relate to this ground is an assertion thatthe Commissioner took the applicant's documents at some stages and hereby hindered its ability to calculate and meet its tax obligations.[59] However, it is not clear how documents taken in 2009 could have affected the completion of GST returns which relate to the statutory demand as it was for GST periods subsequent to that date. In respect of documents uplifted by theCommissioner in 2013, it is not clear how this has hindered the applicant's ability to complete GST returns. Even Mrs Ballantyne deposes that "despite this we have beenable to complete and return hundreds of GST and tax returns and have paid verysignificant amounts of tax". There is no evidence which suggests that there was adirect link between documents taken by the Commissioner and the applicant's abilityto complete its GST returns.[60] There is nothing else raised in the affidavits which suggests that the Commissioner has done anything else which has directly affected the applicant's ability to complete and file tax returns, noting of course, that it was the applicant's deficiency in this regard which led to the Commissioner's investigation, and not the other way round. Thus, despite the applicant's submission that it was more "sinned against than sinning", that assertion is not supported by cogent evidence and I see no basis therefore to set the demand aside by invoking the residual discretion under s 290(4)(c).Statutory demand misstates amount owing[61] The applicant now claims that, as a result of the application of subsequentGST refunds, the applicant's claimed debt has been reduced from $53,369.81 to$38,655.19. That differential is 26.6 per cent. The applicant also says it is entitled to further tax credits for 2015 and has paid in $3,000 and that those amounts, too, should offset the amount claimed in the statutory demand meaning the statutory demand now significantly overstates the amount owing.[62] In Pioneer Insurance Co Ltd v White Heron Motor Lodge Ltd, the Court of Appeal held that a material misstatement on a statutory demand resulting in adifferential of 25 per cent, was "such a material misstatement of the amount due, that a substantial injustice would result".19 It therefore set aside the statutory demand. However, in that case, the sum involved was $1,000,0000, and the full $1,000,000 had been paid, but was being held on the basis the respondent would pay back $250,000 if the Court of Appeal held that only $750,000 was payable on the proper construction of the documents in issue. The Court found that only $750,000 was payable and the demand had overstated the outstanding amount by $250,000. It therefore set aside the statutory demand.[63] The facts in the present case are quite different. The difference between the amount demanded and the amount accepted as now currently owing is not as a consequence of errors in the original demand, but is because amounts assessed as owing to the applicant on subsequent GST returns have been applied to reduce the19 Pioneer Insurance Co Ltd v White Heron Motor Lodge Ltd [2008] NZCA 450, (2008) 19 PRNZ 286 at [54].existing debt. I am therefore satisfied there has been no misstatement of the debt owed which would justify setting the statutory demand on that basis.Outcome[64] None of the grounds raised justify setting aside the statutory demand. The application is therefore dismissed. However, the time for complying with the statutory demand is extended to 5.00 pm on 11 September 2015. This is to allow the Commissioner a 30 working day period to file a statement of claim seeking to put the application into liquidation.[65] The Commissioner is entitled to costs on a 2B basis to be fixed by the Registrar.Solicitors:Chen Palmer, WellingtonInland Revenue Legal and Technical Services, Christchurch