NGUYEN v THE COMMISSIONER OF INLAND REVENUE HC WN CIV 2010-485-1452

NGUYEN v THE COMMISSIONER OF INLAND REVENUE HC WN CIV 2010-485-1452 29 September 2011IN THE HIGH COURT OF NEW ZEALANDWELLINGTON REGISTRYCIV 2010-485-1452IN THE MATTER OF THE JUDICATURE AMENDMENT ACT1972BETWEEN HANH DUC NGUYENPlaintiffAND THE COMMISSIONER OF INLANDREVENUEDefendantHearing: 13/14 June 2011 (further submissions filed on 20 and 28 June 2011)Counsel: D Vincent and A J Watt for PlaintiffE Aspey and S Schou for DefendantJudgment: 29 September 2011JUDGMENT OF MALLON JContentsIntroduction ....................................................................................................................................... [1]Background ........................................................................................................................................ [4]Issue 1: Default assessments ........................................................................................................... [51]Scope of judicial review ............................................................................................................... [51]Ownership of Lexus vehicles ....................................................................................................... [56]Cash for hotel rooms .................................................................................................................... [61]Kiwibank deposits ........................................................................................................................ [65]Inconsistency between Income Tax and GST assessments ........................................................... [68]Issue 2: s 113 .................................................................................................................................... [73]Judicial review of decision not to amend ..................................................................................... [73]Decision following filing of returns ............................................................................................. [77]Decision in August 2010 .............................................................................................................. [81]Amount of cash found .................................................................................................................. [85]Source for cash ............................................................................................................................. [86]Inconsistency between income tax and GST periods ................................................................... [87]Lexus cars ..................................................................................................................................... [91]Hotel rooms/jewellery/watches .................................................................................................... [96]Absence of details about basis for assessments ............................................................................ [97]Conclusion .................................................................................................................................... [98]Issue 3: Provisional tax ................................................................................................................. [101]Amended pleading ...................................................................................................................... [101]Legislative provisions ................................................................................................................. [103]Discussion .................................................................................................................................. [107]Issue 4: Application of funds ......................................................................................................... [111]Result ...............................................................................................................................................[113]Introduction[1] Hanh Nguyen (the plaintiff) is the subject of an application for bankruptcy as a result of tax liability assessed by the Commissioner (the defendant). That application has been stayed pending his application for judicial review of the assessment of his tax liability which is before me. The application challenges theCommissioner's default assessment of Mr Nguyen's income tax for the 1 April 2004 to 31 March 2005 year, and default assessments for GST for the period 31 January 2004 to 30 November 2005. Mr Nguyen did not dispute or challenge these assessments pursuant to the applicable statutory procedures in the Tax Administration Act 1994 (the ―TAA). He brings his judicial review application on the basis that the assessments were not genuine and honest assessments and so are reviewable in this Court. Mr Nguyen also seeks review of the Commissioner'srefusal to amend the assessments under s 113 of the TAA.[2] The principal issues are:(a) Whether the errors in the default assessments are such that the Commissioner cannot have exercised a genuine and honest judgment in making those assessments (Issue 1); and(b) Whether the Commissioner erred in considering the exercise of the discretionary power to amend the assessments (Issue 2).[3] Two further issues were raised at or during the hearing as to:(a) Whether Mr Nguyen was liable to pay interest in the income year ending 2005 for unpaid provisional tax (Issue 3); and(b) Whether Inland Revenue was correct to apply the taxpayer's money tothe GST liability ahead of the income tax liability (Issue 4).Background[4] Mr Nguyen is from Vietnam. He came to New Zealand as a student in April 1988. He obtained citizenship in March 2005.[5] In 2001 Mr Nguyen applied for an IRD number so that he could work in New Zealand. He worked in various jobs and his employers deducted PAYE. In around November 2002 he started working for a building company. The building company deducted withholding tax.[6] Mr Nguyen came to the attention of Inland Revenue following events on 19 October 2005. On that day the police received information from the manager of an Auckland hotel of suspicious behaviour in relation to a group of Asian males, one of whom was Mr Nguyen, who were staying at the hotel. The information was that the group had hired two rooms on 14 October 2005, were paying cash on a daily basis, had not made any check out arrangements and cleaners had been denied access to the rooms. The information was also that the males were driving four Toyota Lexus motor vehicles and they had been seen switching the number plates of the vehicles.[7] The police carried out checks on the vehicle registration numbers and the names used to check into the hotel. They had intelligence information linking the group to organised crime groups involved in drug supply in Wellington. They alsohad ―financial intelligence notings linked to the names and information that one ofthe vehicles had been checked by the Wellington Clan Lab Team.[8] As a result of the information obtained, the police executed a search warrant on rooms 312 and 510 at the hotel. In room 312 the police found a 1.5 gram bag of methamphetamine and a pipe for smoking methamphetamine. There were also a large number of rolled up unused money bags. Mr Pham, who was present in the room when the search warrant was executed, told the police that the methamphetamine belonged to ―Vivienne and ―Hahn from the other room. Mr Pham was asked who had rented room 312. Mr Pham replied that he had. Mr Pham was asked if he had paid cash for the room and he said ―Yes. He wasasked who the roll of money bags belonged to. He replied ―Me, I have them to help Hahn who is a money lender.1[9] Hanh Nguyen (the plaintiff) and Jie Vivienne Liu were present in room 510 when the search warrant was executed. Ms Liu said that she had recently arrived from Australia to visit Hanh Nguyen. The police considered them both to be affected by methamphetamine. Mr Nguyen and Ms Liu denied that the methamphetamine and pipe in room 312 belonged to them.[10] In room 510 the police found a bag containing a number of bundles of cash.2In Ms Liu's bag were further bundles of cash.3 The money was in equal bundles inside money bags the same as the empty ones found in Mr Pham's room.Mr Nguyen admitted that the money was his and said that it was from his business interests in Wellington. Mr Nguyen said he had spent some of the money and there was about $139,000 to $140,000 left. He said it was to buy a small business or a car. He said he worked as a money lender and was a partner in a loan company. He also said he earned money from selling scrap metal to a company in Vietnam. He was asked how he had so much money. He said that he saved very hard. He said he did not know why he did not put the money in the bank. He was asked what the roll of money bags in the other room was for. He said they were to package his money.4[11] Duy Chung Ha arrived in room 510 during the search. The police obtained the keys for a vehicle parked outside from him. A search was carried out of a white Lexus car (registration CFB651). The search located a bayonet under the driver'sseat. While searching the car the police observed two males parking a Lexus jeep (registration H8D8N8) behind the white Lexus car. The two males were Thanh Tung Doan and Anh Tuan Nguyen. They got out of the jeep and went to room 312 while the search of that room was being made. The police obtained the keys for the jeep from Mr Doan and Mr Anh Nguyen. A search of the jeep was conducted.1 According to the police job sheet dated 26 October 2005.2 A police report dated 20 October 2005 describes this as totalling about $140,000.3 Described in the police report as being about $6,000 in bundles.4 According to the police job sheet dated 26 October 2005. The police report dated 20 October 2005 gives a similar description and refers to Mr Nguyen saying that he worked for ASIA Finance and Ngo Quyen Shipping Company in Vietnam.[12] The police believed that the group were awaiting a shipment or delivery of drugs and the money was for completing the purchase. They believed that there had been some delay with the delivery. Other than Ms Liu and Mr Ha the police understood the group to be from Wellington. The police believed Mr Nguyen to bethe ―main person and that Mr Ha might have been an Auckland contact.[13] As a result of these events Mr Ha was charged with possessing a weapon. Mr Doan was arrested for possession of ecstasy. He was an overstayer since 2002 and a removal order was served. Mr Anh Tuan Nguyen had overstayed since 2001 and a removal order was served on him. Ms Liu was charged with possession of a pipe and possession of methamphetamine. Mr Nguyen was arrested for possession of methamphetamine and a pipe.5[14] On 4 November 2005 a barrister acting for Mr Nguyen wrote to the police requesting that they return Mr Nguyen's property and money. It seems that thisprecipitated communications between the police and Inland Revenue about Mr Nguyen. This included a letter from the police to Inland Revenue dated 25 November 2005. In this letter the police advised Inland Revenue that:(a) They had located cash in Mr Nguyen's room, which was in two bags and totalled $113,280 and $27,700;(b) A further $8,620 in smaller bundles was located and this was believed to belong to Ms Liu;(c) Ms Liu was Mr Nguyen's girlfriend and she had told the police thatMr Nguyen had spent about $9,000 on buying her jewellery during her visit from Australia, that Mr Nguyen had bought himself a Rado watch for $10,000 while he was in Auckland, that both these purchases were made in cash, and that she believed that Mr Nguyen was paying for both rooms during the stay.5 The charges against Mr Nguyen were later withdrawn in February/March 2006. This appears tohave been because the methamphetamine and pipe he was charged with possessing were in theroom with Mr Pham.(d) Mr Nguyen had given three explanations, in a video interview the police had carried out, of how he had obtained the money. The first explanation was that he was a partner with a Chinese national, whose name he did not know, in a money lending business which had recently folded. The second explanation was that he had made the money buying and selling scrap metal for a business in Vietnam called Ngoquyen Shipbuilding. The third explanation was that the money was proceeds from the sale of his grandmother's property in Vietnamand that he carried the money back with him on two recent trips to Vietnam.(e) Mr Nguyen had requested that his property and money be returned to him.[15] Inland Revenue discussed the information with the police on 6 December 2005. In that conversation the police reiterated their view that the group were waiting for a supply of methamphetamine. The police said that if any of Mr Nguyen's explanations were true then why was the cash bundled into $10,000lots. The police advised Inland Revenue that there were four Lexus vehicles, that none of them were in Mr Nguyen's name and the police only had registration numbers for two of the vehicles.[16] Inland Revenue carried out a check on the Lexus car with the registration number H8D8N8 on 6 December 2005. This recorded Mr Doan as the current owner and said that he had owned the car since 7 March 2005. It recorded Mr Doan'saddress as being 13 Palm Grove, Island Bay. Inland Revenue also carried out a check on the Lexus vehicle with the registration number CFB651. This showed that the current registered owner of the vehicle was Poutha Sam as from 23 November2004. Poutha Sam's address was recorded as 13 Palm Grove, Island Bay. It alsoshowed that the previous registered owner as being Mr Ha. He was recorded as having an Auckland address and as owning the car since 6 September 2004. Mr Nguyen was not shown as having owned either vehicle.[17] Inland Revenue checked the addresses it had for Mr Nguyen. As at 26 June 2003 Mr Nguyen's address was an address on the Terrace. As at 18 May 2005,Mr Nguyen's address was shown as C/o 13 Palm Grove. From 31 October 2005 a Miramar address was recorded for him.[18] As a result of these checks, an Inland Revenue employee (Ms Jackson) made a note stating that she believed both vehicles were owned by Mr Nguyen. Her note recorded the reasons for this as being:(a) 8 is the lucky number for Vietnamese and HDN are Mr Nguyen'sinitials;(b) The address of the registered owners of both vehicles was 13 Palm Grove and this had been Mr Nguyen's address.[19] On 6 and 7 December 2005 Inland Revenue received information from a clothing manufacturing business that Mr Nguyen was a casual worker for the business. It was told that the business would deliver material to Mr Nguyen who would sew the garment which would then be collected. Mr Nguyen was paid in cash at his request. The clothing business deducted PAYE although there had been a problem with this because the IRD number they were given was one digit wrong. There was no written contract. The last delivery was made to Mr Nguyen on 10 October 2005, with a deadline of 18 October 2005 which was ready on time and collected on that day. 6[20] On 7 December 2005 Inland Revenue received from Kiwibank a statement of Mr Nguyen's account for the period 1 September 2005 to 7 December 2005. Thestatement showed various outgoings, a transfer of $60, and cash deposits of $770, $1880, $340, $920, and $370 on various dates within that period.6 Mr Weir later said to Inland Revenue on 7 March 2006 that Mr Nguyen did not sew. However,when interviewed by Inland Revenue on 4 May 2006, Mr Nguyen confirmed he did receiveincome from the clothing business. Inland Revenue noticed that the information about when thelast delivery was picked up (18 October 2005) did not fit with the information from the policethat Mr Nguyen was in Auckland from 14 October 2005.[21] On 8 December 2005 Inland Revenue made enquiries as to the value of Lexus vehicles.[22] On 13 December 2005 Inland Revenue received information from the building company Mr Nguyen worked for. The building company advised that Mr Nguyen ―was contracted to us under our standard independent contracting agreement a copy of which was enclosed. It advised that Mr Nguyen had worked for the company for 18 months. It advised that Mr Nguyen had not provided his IR330. It provided Inland Revenue with copies of invoices from Mr Nguyen. Most of these invoices had dates in 2002 and 2003 but some were undated. All set out the number hours worked for the period, the hourly rate, and a deduction made for ―tax of 20%. The invoice then set out the net amount as an amount in the ―total exclusive of GST column.[23] On 16 December 2005 Inland Revenue prepared a default assessment for Mr Nguyen for the 1 April 2004 to 31 March 2005 year. The assessment of gross income was made up as follows:GrossIncome as returned for the 2005 year 6,310Lexus GS 300 1999 35,800Lexus RX 330 2004 86,550Cash found 113,280Cash found 27,700Jewellery 9,000Rado Watch 10,000Copthorne Hotel$160 x 2 x 6 nights 1,920Kiwibank deposits 4,260Gross Income $ 294,820[24] Income tax was calculated at 33% of gross income, in the sum of $97,290. A previous payment of withholding tax of $1,262 was deducted. This left the total income tax payable as $96,028. Inland Revenue also prepared default assessments for GST. For 2004 this was based on the gross income as returned by Mr Nguyen of $40,890 which gave a figure of $4,543.33 for GST. For each two monthly GST period this gave a figure of $757.22. For 2005, GST was based on the assessed grossincome of $97,290. This gave a figure for GST of $32,757, or $5,459.50 for each two monthly period.[25] Based on these calculations, on 16 December 2005 Inland Revenue wrote to Mr Nguyen at an address in Lower Hutt. The letter advised that Mr Nguyen owed Inland Revenue $153,518.57 and that this was to be deducted from the money held by the police. The letter did not provide details as to how the sum had been calculated. On the same day Inland Revenue issued a notice to the police to deduct from the money it held the lesser of $153,518.57 or the funds available.[26] On 19 December 2005 Inland Revenue wrote to Mr Nguyen at the address in Lower Hutt. It advised Mr Nguyen that a default assessment for the income tax year ended 31 March 2005 had been made. It also advised that default assessments had been made for GST for two monthly periods beginning with the period ended 31 January 2004 and finishing with the two monthly period ending 30 November 2005. It advised that there was interest and late payment penalties. It advised that the total debt owing to Inland Revenue as at 16 December 2005 was $153,518.57.[27] The letter advised that if Mr Nguyen wished to dispute the default assessments he needed to file an income tax return for the year ending 31 March 2005, file GST returns for the periods referred to above and to issue a notice of proposed adjustment (NOPA) disputing the default assessments. Further information was provided about a NOPA. This included that the final day for disputing the default assessments was 19 April 2006 and that if he failed to take the steps by this date, in the absence of exceptional circumstances, he would be unable to dispute or ultimately challenge the assessments. He was also advised that collection action would commence within 14 days.[28] The letter attached a statement of account setting out the total indebtedness of $153,518.57 based on the default assessments for GST and income tax. In relation to GST that account set out that $5459.50 had been assessed for each two monthly period between 31 January 2005 and 30 November 2005 and that $757.22 had been assessed for each two monthly period between 31 January 2004 and 30 November 2004. It set out the penalties and interest that related to each two monthly period.These gave a total for GST of $43,884.95 (of which $6,584.63 was penalties and interest). The statement of account also set out that the default assessment for income tax for the 31 March 2005 year was $96,028, that penalties on that sum were $50, that interest was $13,470.85, that a payment of $15.23 was deducted, and that the balance owing for that income year was $109,633.62. No other detail was provided as to how each of the GST assessments and the income tax assessment had been made.[29] On 21 December 2005 Inland Revenue received a telephone call from Ms Som (also known as Dan Nguyen) who was Mr Nguyen's wife.7 She said that she was calling for Mr Nguyen about an IR3 tax return. She said she did not know if Nguyen had received the letter of 19 December 2005. Nothing further was heard from Ms Som but, by letter dated 6 March 2006, Mr Nguyen advised Inland Revenue that a Mr Weir had authority to act on his behalf because Mr Nguyen'sEnglish was limited and his understanding of the tax department was non-existent. The letter requested that Inland Revenue give Mr Weir all the information Inland Revenue had so that Mr Weir could explain it to Mr Nguyen. The letter said that Mr Nguyen wished to fix any problems he had with Inland Revenue.[30] On 7 March 2006 Mr Weir met with Mr Hodgetts at Inland Revenue. He produced the 6 March 2006 letter of authority from Mr Nguyen to discuss Mr Nguyen's tax issues. Inland Revenue's note of the meeting on that day recordsMr Weir advising that the cash found with Mr Nguyen was from a property sale and was to set up a new business. The note also records that Mr Weir told Inland Revenue that Mr Nguyen had been out of New Zealand a lot, sometimes eight months at a time, and that he brought into New Zealand cash in US dollars. The note refers to Mr Nguyen needing to file income tax returns and stressing that Mr Nguyen had until 19 April 2006 to dispute the assessments.[31] On 27 March 2006, pursuant to the notice to deduct which had been sent on 16 December 2005, a payment of $137,980 was received electronically from the police. An internal Inland Revenue memorandum dated 30 March 2006 records that Mr Hodgetts applied this to the 31 March 2003 GST period ―being the oldest arrears7 Mr Nguyen says that they separated in early 2006.and the priority revenue. It records that having cleared the debt for this period Mr Hodgetts transferred the balance of $49,928.24 ―to the next oldest debt period being 31/03/2006. It records ―a final transfer of the credit interest of $59.24 wasmade from 31/01/2003 to 31/03/2003.[32] Mr Weir arranged for Mr Nguyen to be interviewed by Inland Revenue. The interview took place on 4 May 2006. Mr Nguyen was asked what income he received in the 2005 tax year. He responded that he worked for the building company until June 2004 and then he went to Vietnam to sell a house and organise his steel investments. He also said he received commission from money lending. He advised that he had US currency packed onto his body when he entered New Zealand in July 2005 because Vietnam prohibited the export of over US$3,000. He said that the money belonged to him and it came from selling a house. He said the total payments were US$270,000, but the total amount brought into New Zealand was US$102,000 in cash. He said that he brought this money into New Zealand because he wanted to live here. He said he was ready to export scrap steel from New Zealand to Vietnam. He said he said he was a loans manager and that:At present Vietnamese people in NZ who want to send money back to Vietnam come to Hanh and give him the money they wish to send. Hanhcontacts the family in Vietnam (Hanh's family). He informs them that he hasreceived a payment. The family in Vietnam then releases payment to the other party in Vietnam.The money Hanh collects from the NZ Vietnamese it is collected and retained by Hanh, the money is used by Hanh to live and also to save money to buy a ship the Atlantic Trader to sell for scrap to Vietnam.[33] Mr Nguyen also said that the money was always held with him, that he had not collected much money by this transfer scheme and that no accounts were held.[34] After the interview was completed, Inland Revenue employees conducting the interview (Mr Hodgetts and Ms Carr) noticed that Mr Nguyen and Mr Weir drove away in a Lexus car with the registration number H8D8N8.[35] On 31 May 2006 Mr Nguyen filed the two monthly GST returns for the period between 31 May 2004 to 30 November 2005 (although one of these was mistakenly returned for a four month period). In each of these returns he recordedhis income as nil. He also filed an individual tax return (IR3) for the tax year ended 31 March 2005. He described himself as a shipping agent. He recorded his overseas income as $19,704.30 and his self employed income as $10,222.50. He recorded provisional tax paid in 2005 as $139,000 and a tax refund payable of $133,285.60. Mr Nguyen also filed an individual tax return for the year ending 31 March 2006. He described his business as shipping agent. He recorded total overseas income of $53,030.30. He also recorded ―students cash advances of $3,200. He recorded hisrefund from the previous year as his 2006 provisional tax and calculated a refund for the 2006 year of $119,859.70.[36] Also on 31 May 2006 there was a telephone conversation between Mr Weir and Inland Revenue (Mr Hodgetts). Mr Hodgetts' file note of that conversation recorded that Mr Hodgetts said that Mr Nguyen still needed to issue NOPAs and to provide a letter or explanation in support of Mr Nguyen's claim that he did notreceive notice of the default assessments until mid January 2006. Mr Hodgetts alsosaid that he would prefer ―an attempt to present the NOPA and supporting facts instead of not sending in anything. It was also discussed that the January and March 2004 GST returns will still outstanding and that the cessation date for GST needed to be clarified.[37] The next day Mr Hodgetts prepared an internal memorandum which said that the issues for investigation were whether to accept or reject the late returns, any late NOPA that may be filed and any later letter of explanation for filing these out of time. The memorandum summarised the information Inland Revenue had, including the interview with Mr Nguyen on 4 May 2006. The memorandum concluded that:NGUYEN has confirmed that he is receiving income from his money transfer operation. He has been unable to provide evidence to support thatthe money seized from NZ Police was brought into NZ ‗body packed'. Themoney seized was in NZ currency and not USD as stated by NGUYEN at interview. No records or documentation has been supplied in support of his claims beyond what was provided to NZ Police at the time of his arrest.[38] There were further telephone conversations with Mr Weir on 7 June 2006 and 26 June 2006. In the first of these Mr Weir confirmed that the missing GST return would be a nil return. In the latter conversation, Mr Weir told Mr Hodgetts that hewould deliver a final GST return and the NOPA the next day. In the event he did neither of these things.[39] By letter dated 11 July 2006 Inland Revenue advised Mr Nguyen that he wasdeemed to have accepted the Commissioner's notice because Mr Nguyen had failed to file outstanding return forms, had failed to issue a NOPA, had not detailed exceptional circumstances that prevented Mr Nguyen from filing the returns and NOPA on or before 19 April 2006 and had not applied on or before 19 April 2006 challenging the decision to register him for GST. An appendix showed that the $137,980 held by the police had been applied to the GST first and that the outstanding balance of the total debt was $29,395.15.[40] By letter dated 20 September 2006 Inland Revenue advised Mr Nguyen that interest and penalties would be charged on the unpaid balance and that enforcement action would be taken if Mr Nguyen failed to reply within 14 days. A statement of claim was filed in the District Court on 27 October 2006. At this time the amount claimed was $30,175.29. There was difficulty serving Mr Nguyen. A new statement of claim was filed on 27 May 2008. By this time the amount claimed was $34,787.78. Judgment was entered for that sum on 29 July 2008.[41] On 6 April 2009 the Commissioner recalculated the interest and penalties. As a result of this recalculation, Mr Nguyen was advised that the amount outstanding as at April 2009 was $834.18 ―core income tax for the year ended 31 March 2005, plus$9,316.88 in penalties and $29,121.87 in interest in relation to that income year. This amount remains unpaid.[42] Bankruptcy proceedings were commenced in March 2010 on the basis of the default judgment obtained in the District Court. Mr Nguyen sought to oppose the bankruptcy proceedings and to set aside the default judgment. He filed an affidavit in which he said that:(a) He was an employee of the building company and expected the company to take care of tax.(b) In 2005 he started his own scrap metal business involving importing scrap metal from New Zealand to Vietnam. He had obtained US$125,000 from family members in Vietnam for this.(c) He had gone to Auckland to buy a boat. This was when the police executed the search warrant at the hotel.(d) The Commissioner was holding all his money and it was unfair to bankrupt him over a $35,000 debt.[43] By letter dated 3 August 2010 solicitors for Mr Nguyen requested the Commissioner to correct the assessments under s 113 so that the returns as filed were accepted. The letter requested a response by midday 6 August 2010 together with reasons. Inland Revenue (Mr Uddstrom) replied by letter dated 6 August 2010 saying that the assessment could not be amended because he had not been provided with all relevant information. The letter also said that if Mr Nguyen would like theCommissioner to amend the returns, he should provide ―sufficient relevant information with your requests to ensure that a correct assessment can be made.[44] On 6 August 2010 this judicial review proceeding was commenced. The proceeding alleged errors in the exercise of the discretion under s 113 in requiring that a NOPA be filed, and in failing to take into account that the default assessments were wrong on the basis of the information Inland Revenue had, namely:(a) the registration details for the two cars;(b) the explanation Mr Nguyen gave at the interview on 4 May 2006 for the cash he had;(c) that Mr Nguyen had explained at that interview that the valuations for the jewellery and the watch were without basis; and(d) the income tax and GST returns Mr Nguyen had filed.[45] On 9 August 2010 Mr Uddstrom received from another Inland Revenue employee (Ms Carr) court documents relating to Mr Nguyen's opposition to the bankruptcy application. This included an affidavit from Mr Nguyen. The affidavit was not supported by any documents but said that:(a) the cash found was lent to Mr Nguyen by his family in Vietnam through a sale of land;(b) the cars were not his and were not registered in his name;(c) he did not know what jewellery or watch Inland Revenue were referring to or how they were valued. He had a watch that was worth $1100 and the jewellery was worth $30.(d) He received the default assessments in mid-January 2006, he had no understanding of what was going on, it took a while to work things out, they did not know how to draft a NOPA but understood that once the correct returns were filed the assessments would be amended.[46] On 10 August 2010 Inland Revenue made further enquiries in relation to the H8D8N8 number plate. These enquiries revealed that the plate was to be collected by Mr Doan, that payment was made via direct credit on 26 August 2005, that it was manufactured on 2 September 2005, that the invoice was issued to Dan Nguyen (theplaintiff's wife) at PO Box 2521, and that the PO Box number had been opened in the name of ―Nguyen. Enquiries were also made of registered ownership changes.This showed that on 17 May 2006 the ownership of the Lexus (H8D8N8) was transferred from Mr Doan to Ngoc Duc Do (of 6 Landsdowne Terrace, Karori) and afew days later to a car sales' company. The Lexus (CFB651) which had been inPoutha Som's name since 6 September 2004 was sold to Touch Dan Nguyen (also of 6 Landsdowne Terrace Karori) on 4 February 2010 and onsold on 7 July 2010.[47] On 13 August 2010 Inland Revenue (Mr Uddstrom) advised Mr Nguyen'ssolicitors that, for the s 113 request to be considered by the Commissioner, Inland Revenue needed documentation from which the Commissioner could be certain thata clear and unambiguous error had been made. Mr Uddstrom said that the information should include all bank statements for the 2005 income tax year, any accounts for any business venture, the source of the cash the police located in their search, the value of the jewellery purchased for Ms Liu and the value of the watch found in Mr Nguyen's possession at the time of his arrest.[48] Mr Nguyen's solicitors replied by letter dated 24 August 2010. The letterenclosed a Vietnamese document and a translation of that document from the Department of Internal Affairs. The translation stated that it was a letter of house transfer in respect of a house sold by Mr Nguyen on 5 October 2004 for two payments of US$135,000. The letter said that Inland Revenue already had Mr Nguyen's bank statements and that there were no bank accounts for any business.The letter said that Mr Nguyen was to provide further instructions but the solicitors expected that Mr Nguyen would confirm that he did not trade as a money lender and had no offshore accounts. The jewellery and watch were said to be fakes which were purchased overseas for around $1000. The solicitors asked whether further information was required.[49] Mr Uddstrom's affidavit says that he considered the further information that was supplied but he was not satisfied on the basis of it that there had been a clear unambiguous error made in the default assessments. It seems that this was not communicated to Mr Nguyen but the reasons for Mr Uddstrom's view are set out in his affidavit filed in this proceeding as follows:(a) the plaintiff had given three different explanations for the cash found in his possession at the time of his arrest;(b) there was no trail of the funds flow from Vietnam;(c) there was uncertainty regarding the legitimacy of the letter of house transfer supplied by the plaintiff and translated by the Department of Internal Affairs;(d) the Department had been informed by the Police as to the details of‗Operation Copthorne', including:(i) the cash being found in $10,000 bundles in two bags in room 510 of the Copthorne Hotel which had been let to the plaintiff on a daily basis, for cash, for the previous five to six days;(ii) the Copthorne Hotel Manager calling the Police to report that:1. a group of Asian males who were staying at the hotel had been seen switching vehicle registration plates; and2. hotel cleaners had been denied access to clean rooms 312 and 510;(iii) a 1.5 gram bag of methamphetamine, a methamphetamine pipe and a large number of unused money bags being found in room 312 of the hotel. One of the occupants (named―Diesel Vin Pham) of room 312 had indicated that themethamphetamine and the methamphetamine pipe belongedto the plaintiff and the plaintiff's girlfriend;(iv) during the execution of the warrant, the Police considered the plaintiff to have been affected by methamphetamine because his eyes were wide open, he was fidgeting, nervous and licking his lips; the plaintiff denied to the Police that he had been smoking methamphetamine; and(v) a bayonet was located under the driver's seat of one of theLexus vehicles (CFB651) being driven by the group of Asian males.I did not consider that it was for the Commissioner to investigate the legitimacy of the purported property transaction in Vietnam, or, assuming that the property transaction was genuine, whether the purported property transaction was the source of the funds.I further considered that, if he had wished to challenge the default assessments, the plaintiff should have disputed matters promptly following the making of the default assessments, in accordance with the challenge procedure prescribed in the TAA, not several years later. As I understand it, s 113 of the TAA is aimed at clear and unambiguous errors; and if theplaintiff was seeking amendments in reliance upon the Commissioner'sdiscretionary powers of amendment under that section, then he would need to have provided the Commissioner with sufficient clear corrobatory evidence to support the plaintiff's request, as set out in the SPS. Iconsidered that the plaintiff had failed, and has continued to fail, to do that.[50] Mr Nguyen pursued his judicial review proceeding and amendments were made to the statement of claim in December 2010 and June 2011.Issue 1: Default assessmentsScope of judicial review[51] The default assessments were made by the Commissioner under s 106 of the TAA. Default assessments may be the subject of objection/challenge proceedings under the TAA but to initiate this a NOPA must be filed within the period prescribed by the TAA.8 For Mr Nguyen the prescribed time for filing a NOPA was 19 April 2006. He did not file a NOPA within that time (nor has he subsequently). This proceeding challenging the default assessments is brought as an application for judicial review.[52] For Mr Nguyen it is accepted that the statutory procedures are the primary way to challenge default assessments and that the scope for judicial review is limited. This follows from s 109 of the TAA which provides that disputable decisions cannot be disputed in court outside the statutory procedures in the TAA.Section 109 also provides that every disputable decision is ―correct in all respects.Section 114 provides further matters which will not invalidate an assessment.[53] As a result of these provisions a purported assessment may be challenged in judicial review proceedings if it is ―not an assessment at all or if there are other exceptional circumstances which bring it outside ss 109 and 114.9 An assessment is not an assessment at all if the assessment was ―no more than an arbitrary conjectureor was demonstrably unfair.10 The Commissioner is required to ―exercise judgment and make the assessment ―on an intelligible basis and not act ―arbitrarilyin disregard of the law or facts as known to him.11 However, there is not a ―high threshold as to the material on which that judgment is based.12 There must be agenuine attempt to ascertain the income ―even if carried out cursorily or perfunctorily.8 Section 3 and 89D of the TAA. A return is also required to be filed.9 Westpac Banking Corporation v Commissioner of Inland Revenue [2009] NZCA 24, [2009]2 NZLR 99 at [59]-[60].10 Cooke P in Lowe v Commissioner of Inland Revenue [1981] 1 NZLR 326 at 336.11 Richardson J in Lowe at 348.12 Richardson P in Commissioner of Inland Revenue v New Zealand Wool Board (1999) 19 NZTC15,476 at 15,489.[54] Mr Nguyen submits that the assessments were not ―an honest appraisal or a genuine exercise of judgment in relation to:(a) The two Lexus vehicles which the information indicated were not owned by Mr Nguyen;(b) The cash paid for the hotel rooms because Mr Pham had said that he had paid for his room;(c) The Kiwibank deposits because on their face they related to a later period;(d) The GST assessments and the Income Tax assessment which were inconsistent with each other;[55] Mr Nguyen originally challenged the amount of cash found as included in the default assessment, as well as the values attached to the cars and to the watch and jewellery. The basis for these amounts was provided to Mr Nguyen for the first time on 30 May 2011. In light of this information Mr Nguyen concedes for the purposes of this proceeding that there was information on which the Commissioner had based the amounts for these items. Other matters referred to in the statement of claim were also not pursued.13Ownership of Lexus vehicles[56] Mr Nguyen submits that there was no basis on which the Commissioner could conclude that the two Lexus vehicles were owned by him.[57] The basis on which the Commissioner formed the view that the two vehicles were owned by Mr Nguyen is set out above (at [18]) and in the context of the information received from the police. The Commissioner supplemented the13 In Mr Nguyen's affidavit and in submissions at the hearing an issue was raised as to whether MrNguyen was liable for GST. He says that he was an employee of the building company and thatPAYE was paid on his behalf. However I do not consider this further because Inland Revenuehad information from the building company on which they were able to exercise a judgment thathe was an independent contractor.evidence about the information he relied on after the hearing. I do not consider this supplementary evidence because the issue of whether the two Lexus vehicles were owned by Mr Nguyen was part of the original statement of claim filed in August 2010. The Commissioner therefore had an opportunity before the hearing to address this. I also do not consider the observations made by Inland Revenue employees in May 2006 (refer [34] above) or the further enquiries made by Inland Revenue in August 2020 (refer [46] above) as Inland Revenue did not have this information at the time the default assessments were made. For the same reason I disregard Mr Weir's evidence that he and Mr Nguyen had borrowed the Lexus they were seen driving after the interview in May 2006 from Mr Nguyen's ex-partner and her boyfriend.[58] I accept that some of the information the Commissioner had about the two Lexus vehicles points away from ownership by Mr Nguyen. He was not the registered owner of either vehicle. He was not seen driving the vehicles in Auckland. The others driving the vehicles were believed to be involved in drug dealing (and so may too have been in a position to pay for the cars). A bayonet was found in the Lexus with the registration of CFB651, as a result of which Mr Ha was charged with possession of an offensive weapon. Mr Ha had been a registered owner of that vehicle and was believed by the police to be an Auckland contact in the drug dealing activities of the group. Although one of the number plates had a link to Mr Nguyen (H8D8N8),14 the other (CFB651) did not. The 13 Palm Grove address of the registered owners were as at dates in 2004, whereas Inland Revenue had that address for Mr Nguyen only between May and October 2005 and it was only given as a c/o address (suggesting it might not be a permanent address). It is also the case that the enquiries the Commissioner made were limited. For example, the Commissioner does not seem to have enquired as to whether the registered owners lived at the addresses stated. There were also other enquiries which could have been made as is shown by the later enquiries that were in fact made.14 Mr Nguyen says that in Vietnamese culture the order of Mr Nguyen's name is NDH (rather thanHDN) but this does not detract from what would be an unlikely coincidence of the three initialsmatching Mr Nguyen's initials if Mr Nguyen was not linked to the vehicle.[59] Nevertheless there was at least some information before the Commissioner linking Mr Nguyen to the two cars. Both cars were registered to owners at 13 Palm Grove. That was Mr Nguyen's address, as advised to the Inland Revenue, for aperiod. The initials of one of the cars matched Mr Nguyen's initials (and did notmatch the registered owner's initials). According to the information from the police,Mr Nguyen had been found in October 2005 with a large sum of cash which he accepted was his, and Mr Nguyen was considered to be the ―main person involvedin the suspected drug dealing.[60] The information relied on by Mr Nguyen is insufficient to show that the Commissioner did not genuinely exercise judgment as to whether the cars had been paid for by Mr Nguyen in the 1 April 2004 to 31 March 2005 income year. There was a basis for the Commissioner concluding that he had paid for the cars. This was an assessment made, even though it was one based on limited information and despite other information which suggested Mr Nguyen might not have paid for the cars. Mr Nguyen had the opportunity under the statutory procedures to dispute this but failed to do so. It is not an exceptional case such that it could be regarded as not being an assessment at all so as to bring it outside the terms of s 109 of the TAA.Cash for hotel rooms[61] Mr Nguyen submits that the Commissioner should not have attributed to him the money expended on the hotel rooms.[62] The affidavit evidence filed on behalf of the Commissioner does not specifically address the reason why the Commissioner attributed this to Mr Nguyen as income for the 1 April 2004 to 31 March 2005 year. It does, however, set out the information the Commissioner had at the time of making the assessment and that it was based on the information Inland Revenue had obtained.[63] The information which Inland Revenue had included that: the rooms were being paid with cash; Mr Pham said that he had been paying for the room in which he was found whereas Ms Liu said that she believed that Mr Nguyen had been paying for both rooms during the stay; Mr Nguyen was found with a large amount ofcash which he accepted was his; and Mr Nguyen acknowledged to the police that he had spent some of the cash. The information also included that Mr Nguyen had given various reasons as to where the money had come from. Some of these explanations were consistent with income being received from business activities which could potentially have related to the 1 April 2004 to 31 March 2005 year as they described on-going activities, and Mr Nguyen said he saved very hard and did not use a bank.[64] The Commissioner did not need to be satisfied that Mr Nguyen had in fact paid for the rooms and that the cash he used to pay for the rooms had been derived in the 1 April 2004 to 31 March 2005 year. On the basis of the information available to the Commissioner there was a basis to conclude that he had. Mr Nguyen has failed to show that the Commissioner did not genuinely exercise judgment about this. This is not an exceptional case such as to bring the assessment outside the terms of s 109 of the TAA.Kiwibank deposits[65] Mr Nguyen submits that there was no basis on which the Commissioner could include as income for the 1 April 2004 to 31 March 2005 income year Kiwibank cash deposits made in September 2005.[66] An affidavit was filed on behalf of the Commissioner after the hearing seeking to explain the rationale for this. However this issue was raised in the amended statement of claim filed in December 2010, although not particularly clearly. Because it was raised in that pleading, and further particulars could have been sought prior to the hearing if the Commissioner was unclear as to what was alleged, I do not consider the affidavit evidence filed after the hearing.[67] Affidavit evidence filed on behalf of the Commissioner in advance of the hearing did, however, set out the information which the Commissioner had at the time of the assessment. That included the information discussed above in relation to the cash used to pay the hotel rooms. That same information provided a basis for a judgment that the deposits were from an income source that related to the 1 April2004 to 31 March 2005 year. There may have been other sources for the deposits(for example payment from the clothes' manufacturing business), but it was forMr Nguyen to show this through the statutory dispute process. Mr Nguyen has failed to show that a genuine exercise of judgment was not made as to the source of the deposits. This is not an exceptional case as to take the assessment outside s 109 of the TAA.Inconsistency between Income Tax and GST assessments[68] Mr Nguyen submits that there is an inconsistency in the timeframes the Commissioner used for the default assessments as between the Income Tax assessment (the tax year ending 31 March 2005) and the GST assessments (which allocate GST based on that income for the period between 31 January 2005 and 31 November 2005). Mr Nguyen submits that this is an inconsistency which is so stark that it cannot have been a genuine and honest assessment of his tax liability.[69] The Commissioner filed affidavit evidence after the hearing which sought to explain why the GST liability was assessed for a later period than the income tax. I do not consider this evidence on this issue because this issue was raised in the amended statement of claim filed in December 2010 and the Commissioner therefore had the opportunity to address it in advance of the hearing if he wished to. The affidavit evidence filed before the hearing did, however, set out the information Inland Revenue had and how the income and GST amounts were calculated.[70] The information shows that the Commissioner used assets held and expenditure made later than 31 March 2005 (ie the cash found in October 2005, the purchase of the jewellery and watch in October 2005, the payment for the hotel rooms in October 2005, and the September 2005 Kiwibank deposits) to assess income for the year ending 31 March 2005. However, as discussed above (refer [63] and [67]), there was a basis for doing so. The cash may have been money saved from business activities for the 31 March 2005 year.[71] Having taken this approach for income, it was not necessarily inconsistent to then assess GST for later periods. It would be inconsistent if Mr Nguyen only had received income from his business activities (whatever there were exactly) in oneincome year. However, the Commissioner was able to exercise a judgment as to the income earned after 31 March 2005 on which GST was payable. GST is charged on the supply in New Zealand of all goods and services.15 It is payable within a tax period if the supply of goods and services is made within that period.16 The default taxable period is two months.17 Mr Nguyen had been assessed as earning income for the year ending 31 March 2005. That income could then provide a basis for determining the income for the next year on which GST was payable in each two month period.[72] Mr Nguyen has therefore not shown that there is an inconsistency such that the assessment was not a genuine and honest assessment. The 19 December 2005 letter set out the income and GST assessments that had been made and the periods to which they related. If Mr Nguyen did not understand how the income and GST had been assessed he needed to take steps to dispute them under the statutory procedures. This is not an exceptional case to take the assessments out of s 109 of the TAA.Issue 2: s 113Judicial review of decision not to amend[73] Section 113(1) of the TAA provides:The Commissioner may from time to time and at any time make all such alterations in or additions to an assessment as the Commissioner thinks necessary in order to ensure its correctness, notwithstanding that tax already assessed may have been paid.[74] Mr Nguyen seeks judicial review of the Commissioner declining to amend the original assessments under s 113 of the TAA.18 It is said that the Commissioner took into account an irrelevant consideration (the failure to file a NOPA) and failed to take into account relevant considerations (that there were clear errors in the15 Section 8 of the Goods and Services Tax Act 1985 (―the GST Act). There are exceptions butnone are relied on here.16 Section 20 of the GST Act.17 Section 15 of the GST Act.18 The pleadings alleged that a further decision was made not to amend under s 113 in April 2009. However this was not pursued at the hearing because it was accepted that this was simply the recalculation of interest and penalties.default assessments that had been made and Mr Nguyen's explanation for the delayin objecting to the assessments). The Commissioner accepts that judicial review of the process in relation to the exercise of the s 113 power is potentially available but says that no ground for review has been made out.[75] A decision not to amend an assessment under s 113(1) is not a disputable decision for which there is a right to invoke the statutory dispute and challenge proceedings.19 Nor does s 113(1) confer a reviewable statutory duty or obligation to reassess on request by a taxpayer.20 However it does confer a discretionary statutorypower which can be exercised on the Commissioner's own motion or on request, and which is to be ―exercised in accordance with the explicit and implicit statutorycriteria and to serve the purposes of the legislation.21 The need for there to be time limits in tax administration is a relevant consideration.22 The reason for a delay in making a timely objection may also be relevant.23 The merits of the taxpayer's position ―may, and often will be, a relevant factor but is not ―the paramount consideration in all cases.24[76] This does not, however, mean that the Commissioner is obliged to re-investigate the taxpayer's liability in every case where the taxpayer providesinformation and/or seeks to have the Commissioner exercise the power under s 113. The Commissioner need only assess the apparent merits on the material before it.But in some cases a ―moment's check may show that the quantification of liabilitywas wrong.25 An example where the merits were clear but were not considered at all, when the Commissioner declined to amend an assessment under the predecessor to s 113, is Lawton v Commissioner of Inland Revenue.26 The Court of Appeal considered that there had not been a valid exercise of the discretion and directed that the Commissioner reconsider the application the taxpayer had made for acceptance of a late objection.19 Section 138E(1)(e)(iv) of the TAA which is subject to s 138E(2).20 Lawton v Commissioner of Inland Revenue (2003) 21 NZTC 18,042 at [24] citing Commissionerof Inland Revenue v Wilson (1996) 1 NZTC 12,512.21 Commissioner of Inland Revenue v Wilson at 12,520 (in the context of considering the discretionary power to accept a late objection).22 Commissioner of Inland Revenue v Wilson at 12,520.23 Commissioner of Inland Revenue v Wilson at 12,520.24 Commissioner of Inland Revenue v Wilson at 12,521.25 Commissioner of Inland Revenue v Wilson at 12,521.26 Lawton v Commissioner of Inland Revenue (2003) 21 NZTC 18,042.Decision following filing of returns[77] Mr Nguyen's written submissions contended that the Commissioner first made a decision not to amend under s 113 when, after the income tax and GST returns were filed on 31 May 2006, Inland Revenue confirmed its assessment in its letter dated 11 July 2006. At the hearing his counsel advised that this submission was no longer pursued. I will nevertheless address it because the sequence of events shows a willingness to consider Mr Nguyen's position after the deadline for filing aNOPA which is relevant when considering the Commissioner's later considerationunder s 113 (see below at [81] to [84] and [100]).[78] The written submissions refer to Inland Revenue's standard practice statesthat the filing of returns may be treated as a request to amend a default assessment.27They say that, in response to the filing of the returns, Inland Revenue (Mr Hodgetts) launched an investigation. They submit that the launching of that investigating indicated that Mr Hodgetts, on behalf of the Commissioner, was treating the filing of the returns as a request for amendment of the assessments. They say that the letter dated 11 July 2006 referred only to the failure to file the returns and a NOPA by 19 April 2006 as the reason for declining to amend the assessments. They say that this was an irrelevant consideration. They say that the Commissioner failed to take into account that there were clear errors in the assessment.[79] The sequence of events following the filing of the returns is set out above. Inland Revenue (Mr Hodgetts) was looking for information supporting the returns that had been filed and confirmation about the date that Mr Nguyen received notice of the default assessments (refer [36]). Mr Hodgetts' view was that Mr Nguyen had not provided evidence to support the claim that the money had been brought into New Zealand packed on to his body (refer [37]). There were further communications between Mr Weir and Inland Revenue in June (refer [38]). The final GST return and the NOPA were not filed. The 11 July 2006 letter was then sent (refer [39]).27 Standard Practice Statement: Requests to amend assessments INV 510 August 2002.[80] The sequence of events shows that Inland Revenue was prepared to receive information outside the statutory timeframes but the information was not forthcoming. Inland Revenue was not required to go beyond the information it had before it. That information did not provide any confirmation as to when Mr Nguyen had received the default assessments, which would have been relevant to whether the Commissioner ought to exercise the power under s 113. The information contained assertions by Mr Nguyen about his assets but no supporting evidence. In the absence of supporting evidence it was not clear that any error in the default assessments had been made. In these circumstances there was no requirement under s 113 or otherwise for Inland Revenue to amend the assessment and no adequate basis for doing so had been put forward. No reviewable error occurred in this respect.Decision in August 2010[81] Mr Nguyen submits that a decision not to amend under s 113 was made in response to a letter sent by Mr Nguyen on 3 August 2010, requesting that the Commissioner amend the assessments. He submits that prior to August 2010 the Commissioner had already obtained all material documentation relating to Mr Nguyen's tax position and that this documentation showed that there were clearerrors in the default assessments. He submits that it was therefore an error for the Commissioner to respond on 6 August 2010 declining to amend the assessment because it had not been provided with the relevant information. Similarly he submits that it was an error not to amend the assessments following the provision of further information on 24 August 2010.[82] The clear errors are said to be:(a) That Inland Revenue received $137,980 from the Police, rather thanthe $140,980 as used in Inland Revenue's calculation of the income;(b) The explanation Mr Nguyen gave at the interview on 4 May 2006 that the money was family money from Vietnam and the supporting information of the sale of a property in Vietnam that he subsequently provided;(c) The inconsistency in the time periods as between the income tax assessment and the GST assessment and in relation to the dates the assets or cash were held;(d) The evidence that Mr Nguyen did not own the vehicles;(e) The evidence that Mr Nguyen did not pay for both hotel rooms;(f) The absence of any valuation for the watch and jewellery or any description or photograph of them.[83] He further submits that the Commissioner failed to consider that Mr Nguyen did not receive the letter giving notice of the default assessments and only knew the basis for them when material was disclosed in August 2010.[84] The letter of 3 August 2010 requesting that the Commissioner amend the assessments did not specifically refer to any of these matters and it requested a response with a short time frame. Some articulation of the alleged errors were set out in the judicial review proceeding filed on 6 November 2010. The evidence shows that Inland Revenue was open to receiving information showing that an error had been made. Mr Uddstrom reviewed the information from Mr Nguyen which Inland Revenue held in response to the bankruptcy application (refer [45]). Mr Uddstrom made further enquiries about the Lexus cars (refer [46]). He then wrote to Mr Nguyen setting out the further information that he would need to consider the request (refer [47]). He received some further information by way of the letter dated 24 August 2010 (refer [48]). For the reasons set out above (refer [49]) Mr Uddstrom concluded that there was insufficient evidence that the default assessments were in error.Amount of cash found[85] Mr Nguyen says that there was a clear error as to the amount of cash found in Mr Nguyen's possession. Inland Revenue assessed his income on the basis of advicefrom the police that the amount was $140,980 when in fact it was $137,980.Mr Uddstrom did not consider this presumably because his attention had not been drawn to this error. It was not mentioned in the correspondence sent on Mr Nguyen's behalf and it was not included in the statement of claim filed on 6 November 2010. It appears first to have been raised in the amended statement of claim filed in December 2010. It is a clear error. As it appears not to have been considered by Inland Revenue, Inland Revenue ought to consider whether to amend the income tax assessment to account for this error (see below [99] and [100]).Source for cash[86] Mr Nguyen had given a number of explanations for having the cash. The only supporting documentation he provided was the document relating to the house transfer. Mr Nguyen's claims about the source of the cash were specificallyconsidered by Mr Uddstrom and rejected by him for the reasons set out above (refer [49]). Mr Nguyen had not demonstrated any clear error. No reviewable error occurred in the Commissioner's decision not to amend the assessment on this basis.Inconsistency between income tax and GST periods[87] In considering the merits, Mr Nguyen submits that Inland Revenue ought to have corrected the clear error in relation to the time periods over which the default assessments had been made. However, at no time in this period or previously did Mr Nguyen point out any error in relation to this. It was not for Mr Uddstrom to find every possible mistake in the assessments once a broad application for amendment was made. This was not a case where Mr Uddstrom realised there was an inconsistency and then declined to rectify it. Rather, the inconsistency has been later noted by Mr Nguyen and is now relied upon. There was therefore no error in Mr Uddstrom's process in not addressing this matter. In these circumstances itcannot be said that as at August 2010 the Commissioner was in error in failing to exercise the power to amend the default assessments so that they related to the same period.[88] It appears that the issue of inconsistency in the timeframes was first raised in the amended statement of claim filed in this proceeding in December 2010. Theevidence and submissions for the Commissioner did not address this. At the hearing, and in the absence of any response on behalf of the Commissioner about this, I asked whether the Commissioner could review this issue on the basis that if there was an inconsistency he might still exercise the power to amend the assessments under s 113.[89] This led to Mr Hodgetts filing an affidavit after the hearing. In that affidavit Mr Hodgetts explains why he had assessed the income to 1 April 2004 to 31 March 2005 year. Mr Hodgetts also says that on the information provided to Inland Revenue he considered Mr Nguyen to be conducting a taxable activity prior to and up to the time of the police search at the hotel in October 2005. He says that he used the assessed income for that year to assess GST up to the last relevant two-month GST period. He says that even if it would have been clearer to assess GST on the basis of the assessed income for the 2004 and 2005 income years that would have had adverse consequences for Mr Nguyen. This response shows that Inland Revenue does not accept that there is a clear inconsistency such that even now the power under s 113 should be exercised.[90] Having received that response from Mr Hodgetts I see no point in directing the Commissioner to reconsider the issue under s 113 as Mr Nguyen sought. That is because Mr Nguyen has failed to show that he did not have the income he was assessed as having for the year ending 31 March 2005 or that he did not continue to have that income up to November 2005 such that he was liable for GST up to that date. The only documentation provided at any time to support Mr Nguyen's claimswas the Vietnamese document of the land transfer. Mr Uddstrom has given his reasons as to why he was unpersuaded by this. He was entitled to take that view on the information before him.Lexus cars[91] The next matter on the merits of the assessments relates to the cars. Mr Uddstrom does not say why he rejected an amendment to the assessment in relation to the cars. The evidence shows that further enquiries were made about the cars after the letter of 3 August 2010 from Mr Nguyen's solicitors (refer [46]) but theletter of 13 August 2010 from Mr Uddstrom setting out what further information should be supplied did not refer to the cars. Mr Uddstrom rejected the s 113 application because Mr Nguyen had not provided clear evidence of the source of the cash and because of the suspicious circumstances at the hotel (refer [49]). However, just because Mr Nguyen had a bundle of cash, had paid for the hotel rooms and thejewellery, and was viewed by the police to be the ―main person in a suspected drug dealing operation, does not mean that Mr Nguyen owned everything found at the hotel.[92] I note that the affidavit filed by Mr Hodgetts after the hearing purports to address his reasons for including the car in the default assessment of Mr Nguyen'sincome. However this is not of assistance because it was Mr Uddstrom who was considering the s 113 request. Whether there was a basis for including an amount in a default assessment which can then be disputed is a different question to whether the discretionary power under s 113 ought to be exercised.[93] The further enquiries in relation to the Lexus with the registration H8D8N8 could be viewed as supporting the earlier view that Ms Jackson had made in December 2005. But the link between Mr Nguyen and the Lexus with the registration CFB651 was more tenuous. There were factors that supported Mr Nguyen's claim that he had not paid for that car and the further enquiries showed only that his former wife became the owner of the vehicle in February 2010. It is unclear whether Mr Uddstrom formed the view that the value of both the cars were correctly assessed to Mr Nguyen and if so why.[94] More generally, it is apparent that the assessments involved a degree of guess work. Where there was uncertainty about the ownership of assets, the source of income and when the income was derived, an approach that was favourable to Inland Revenue and unfavourable to Mr Nguyen was taken. For example, the cash found in Mr Nguyen's possession in October 2005 was treated as all having been earned astaxable income in the year ended 31 March 2005 with the consequence that interest and penalties were incurred (see discussion on provisional tax at Issue 3). If any of Mr Nguyen's explanations were correct that was not necessarily the case. Nor was itnecessarily the case if the income was related to drug dealing. Similarly, theKiwibank deposits made in September 2005 were all treated as having been derived from taxable income in the 31 March 2005 year. And, having attributed all the income as being derived in that year, Inland Revenue then assumed that the same level of income was being earned from 31 March 2005 to 30 November 2005. Given the approach taken by Inland Revenue and the guess work it entailed, it was relevant to consider not only whether Mr Nguyen had been able to show a ―clear error but also whether, in relation to any matter raised by Mr Nguyen, he had been treated fairly.[95] The Lexus CFB651 was a matter raised by Mr Nguyen. Inland Revenue had assessed this as having a value of $35,800. The core outstanding income tax under the default assessment was $834.18. The inclusion of the car was therefore material to Mr Nguyen's tax position. In the absence of reasons about this it is unclear if themerits of Mr Nguyen's position in relation to this car were considered and therefore whether he has been treated fairly in relation to this. No matter the source of Mr Nguyen's income, his tax liability ought to be determined fairly. This ought to bespecifically considered by Inland Revenue (see below [99] and [100]).Hotel rooms/jewellery/watches[96] The next matter on the merits relates to the payments for the hotel rooms and the watch and jewellery. Mr Uddstrom's reasons mention the payment of the hotelrooms. He does not specifically mention the jewellery and the watch. The 13 August 2010 letter, which set out further information required to support the s 113 request, did however specifically refer to the jewellery and the watch. Mr Nguyen has had the opportunity to provide evidence to support his claims about these items but has failed to do so. The Commissioner was not obliged to accept the position as stated by Mr Nguyen. Rather, once Mr Nguyen had failed to object to the assessments within the applicable response time the burden was on Mr Nguyen to show that the assessments were wrong. On the information available to Inland Revenue there was a basis for including values for these items in assessing his income for the 31 March 2005 year.Absence of details about basis for assessments[97] Mr Nguyen claimed to have received the default assessments in mid-January 2006. This was despite his wife telephoning the Inland Revenue in late December 2005 (refer [29]). Nevertheless Mr Hodgetts was prepared to take into account that the default assessment was received late but asked first that this be confirmed in writing (refer [36]). That did not occur. This issue was not raised at the time of seeking a review under s 113. Having received the default assessments and discussing them with Inland Revenue in March 2006, it was incumbent on Mr Nguyen to obtain the details. The fact that he did not obtain the details until August 2010 is not a basis for the Commissioner to be directed to reconsider the assessments under s 113.Conclusion[98] In the main, therefore, this is not a case, such as Lawton v Commissioner of Inland Revenue, where the merits of the case were simply not taken into account at all, and the application for amendment was rejected on the basis that it was out of time and no adequate explanation had been given. Instead, here the factual matters were considered, but the evidence submitted by Mr Nguyen was insufficient to show that a clear error has been made.[99] There are however, two points which have emerged in this proceeding which may warrant a further consideration of Mr Nguyen's tax position. The first relates to the money actually received from the police. Although this was not raised initially and so may not have been noticed by Inland Revenue when it was considering the s 113 request, it was raised in December 2010 via the amended pleading. The second exception relates to the Lexus with the registration CFB651. As to that it is not clear that the Commissioner considered the merits of Mr Nguyen's claim that it was not his car, on all the information before Inland Revenue about that car.[100] I am not, however, prepared to make a direction that the Commissioner reconsider the assessments on those two points. The request for the amendment that was made on 3 August 2010 was non-specific. The letter of 24 August 2010 wasincomplete. The Commissioner has shown a preparedness to reconsider matters and its standard practice statement indicates that the Commissioner will use s 113 to amend assessments where genuine errors are made. I therefore say only that the Commissioner could reconsider the assessments on these two matters, particularly in the light of the approach that it took as discussed above (refer [94]).Issue 3: Provisional taxAmended pleading[101] On the morning of the first day of the hearing Mr Nguyen sought leave to amend his statement of claim to add a further cause of action. The cause of action alleged that:(a) interest had been assessed on the basis that Mr Nguyen was a provisional tax payer in the 2005 year;(b) in the 2004 year Mr Nguyen's sole income was derived as anemployee for which PAYE was returned by his employer and he did not have residual income tax of more than $2500 and so was not a provisional tax payer;(c) the decision to treat Mr Nguyen as a provisional tax payer was ultra vires because it was contrary to s MB2 and the definition of―Provisional Taxpayer in s OB1 of the Income Tax Act 1994 (the―ITA); and(d) the decision is justiciable because it is not a disputable decision (s 125(j)(ii) of the TAA).[102] The amendment was opposed on the basis that the claim was not justiciable. Nevertheless, it was accepted that if there was an error in treating Mr Nguyen as a provisional tax payer then it could be relevant to the exercise of the discretion under s 113. On that basis Inland Revenue was given time to file a response to this.Legislative provisions[103] Part VII of the TAA deals with interest on tax payments. That Part includes s 120K which deals with ―instalments of and due dates for provisional tax. It requires a provisional taxpayer to pay their residual income tax in equal instalments on three instalment dates in the income year. Interest is payable the day after any tax is due and underpaid.28 Provisional taxpayer is not defined in the TAA. However, s 3(2) of the TAA provides:Unless the context otherwise requires, and having regard to the context where there is more than one definition of the same term, other terms used in this Act have the same meanings as they have in the Income Tax Act 1994.[104] Section OB1 of the ITA provides that:Provisional taxpayer, in relation to an income year, means a taxpayer—(a) Whose residual income tax for the income year is $2500 or more; or...but does not include—(d) A taxpayer to whom section 33A of the Tax Administration Act 1994 applies.[105] Section 33A of the TAA provides:(1) A natural person is not required to furnish a return of income for a tax year and will not receive an income statement from the Commissioner for the year if, in the corresponding income year, the person—(a) had assessable income for the tax year that was derived only from—(i) Income from employment that is subject to the PAYE rules; or....(2) Subsection (1) does not apply to a natural person who, in the tax year –...28 Sections 120C to 120E of the TAA.Is a provisional taxpayer; or...[106] Section MB2 of the ITA provides for the amount of provisional tax which is payable by a provisional taxpayer. It provides that the amount of provisional taxpayable for each year shall be calculated as a percentage of the taxpayer's residualincome tax for the previous income tax year, varying from 100 per cent to 105 per cent. MB2(2) then provides that:Notwithstanding subsection (1) or any other provision of the provisional tax rules, no person shall be obliged to pay provisional tax in any income year if-...(b) The person's residual income tax for the preceding income year did not exceed $2,500.Discussion[107] As developed in submissions filed after the hearing, the Commissioner'sposition is that Mr Nguyen was a provisional tax payer for the 2005 year because his residual income tax for that year was more than $97,000. This meant that he had residual income tax for that year of $2,500 or more (and so was within s OB1 of the ITA). That was so even though he was not obliged to pay provisional tax in 2005 because in the preceding year his residual income tax did not exceed $2,500 (MB2(2)(b)). Essentially, although there is no obligation to make the provisional tax payments in 2005, if they are not paid then use-of-money interest will accrue under ss 120D, 120E and 120K of the TAA.[108] In response to these submissions Mr Nguyen accepted that, even though he was not obliged to pay provisional tax because of MB2(2) of the ITA, he was liable to pay interest under Part VII of the TAA as if it was payable on a provisional basis. This left one issue in relation to interest. Mr Nguyen submits that he was not a provisional taxpayer under OB1 of the ITA because s 33A of the TAA applied to him. He submits that in 2004 his sole income was derived from PAYE. He submits that even if the Court considers that he was an independent contractor rather than anemployee29 then, because of Reg 4 of the Income Tax (Withholding Payments) Regulations 1979, s 33 of the TAA still applies.[109] However, even if s 33A of the TAA applied to Mr Nguyen in the 2004 year (on which I express no view) it did not apply to him in the 2005 year. In that year, as well as working for the building company in respect of which withholding payments were made, Mr Nguyen had other income. It was because of that other income (which exceeded $2,500) that the use-of-money provisions in Part VII of the TAA applied if provisional tax was not paid during the 2005 year.[110] On the basis that Mr Nguyen fell within the definition of provisional taxpayer in s OB1(1) of the ITA, and that definition applies under s 120K of the TAA, Mr Nguyen was correctly charged interest as a provisional taxpayer. This ground of review therefore fails.Issue 4: Application of funds[111] A further argument arose during these proceedings, which concerned the manner in which the funds, obtained by Inland Revenue from the police, were applied to the tax and penalties which had been assessed as owing. This issue was not raised in the pleadings but Inland Revenue was prepared to respond to it in case it showed an error which ought to be corrected under s 113. The response was provided in Mr Hodgetts' affidavit filed after the hearing and submissions filed on behalf of the Commissioner.[112] Mr Hodgetts says that Inland Revenue's procedure is to apply money paid according to a priority protocol. That protocol lists GST above Income Tax or Provisional Tax. The list of priorities is set out in the Inland Revenue Payment Processing Manual. Therefore, the $137,980 which was deducted from the police was applied first to the GST and penalties on the GST (although GST related to a later period than the income tax) and then to the Income Tax liability. This left the total Income Tax at $4,878.11 and interest and penalties of $24,517.04, while the GST liability and interest incurred on that liability were totally cleared. The29 Refer footnote 13.Commissioner's submissions advanced reasons supporting this approach. The replysubmissions on behalf of Mr Nguyen did not address this issue. I assume therefore that Mr Nguyen accepts that no unfairness occurred in relation to the order in which the money from the police was applied and that I need not consider this further.Result[113] The judicial review proceeding fails. However, as a result of the proceeding, two issues have arisen which the Commissioner could consider under s 113 (refer [99] and [100]). The two issues concern the amount of cash found in Mr Nguyen's possession in October 2005 (refer [85] above) and in relation to attributing the value of the Lexus (CFB651) as income derived by Mr Nguyen (refer [93] and [95] above). The question of costs is reserved. If the parties are unable to agree they may submit memoranda within 30 days at the date of this judgment.Mallon J