BECKHAM V CIR HC AK CIV-2005-404-4522

BECKHAM V CIR HC AK CIV-2005-404-4522 30 July 2007IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY CIV-2005-404-4522 CIV-2005-404-5644BETWEEN MAX BECKHAM Appellant AND COMMISSIONER OF INLAND REVENUE Respondent Hearing: 8 November 2005 Further Submissions Received 30 June 2006, 16 April, 21 and 30 May 2007 Appearances: M S Hinde for the Appellant R J Willox and Ms S Bolland for the Respondent Judgment: 30 July 2007JUDGMENT OF FRATER JThis judgment was delivered by Justice Frater on 30 July 2007 at 4.00 pm, pursuant to r 540(4) of the High Court Rules Registrar/Deputy Registrar Date:Counsel: M S Hinde P O Box 455 Shortland Street Auckland for the Appellant Solicitors: Palmer Macauley (R G A Palmer) P O Box 576 Kerikeri for the Appellant Meredith Connell P O Box 2213 Auckland for the RespondentIntroduction[1] This consolidated appeal from two decisions of the Taxation Review Authority concerns the appellant's liability to pay income tax on the proceeds of sale of farmland. It raises issues as to jurisdiction and substance. [2] The jurisdictional issue concerns the Authority's power to assess liability on an alternative ground, referred to in the pleadings, after upholding the taxpayer's challenge to the ground of assessment. The substantive argument concerns the merits of the Authority's assessment under s CD1(2)(e) of the Income Tax Act 1994 (ITA). [3] At the hearing before me counsel for the appellant relied upon the principle inCIR v Farnsworth Ltd [1984] 1 NZLR 428, cited with approval by Keane J in CIR v Zentrum Holdings Ltd [2006] 1 NZLR 710. At the time, the Zentrum Holdingsdecision was subject to appeal to the Court of Appeal. The Court of Appeal judgment allowing the appeal (reported at [2007] 1 NZLR 145) was released on 23 May 2006. On 19 September 2006 the Supreme Court granted the taxpayer leave to appeal on the ground whether the principles in CIR v Farnsworth continued to apply under the disputes resolution process in the Tax Administration Act 1994 (TAA). [4] Because of the potential significance of that issue to the determination of this appeal, release of this judgment was deferred pending receipt of the Supreme Court's judgment. In the event, the appeal to that Court was abandoned. Subsequently, counsel have had the opportunity of filing submissions on the Court of Appeal's judgment in Zentrum Holdings, which, they accept, binds this Court.Background[5] Mr Beckham has been a farmer for well over 30 years. He has also been in business as an agricultural contractor and, for a time, owned a large commercial fishing fleet.[6] In 1992 and 1993 he purchased two adjoining farms at Mangonui, in Northland, together comprising approximately 375 hectares, and ran them as a beef cattle unit. [7] In 1997 he decided to go dairy farming in the Maniototo in Central Otago. He therefore sought to realise the Northland property to provide capital for the venture. [8] In February 1998 he entered into a conditional agreement to sell the property to Stargate Holdings Limited (Stargate) for $2,100,000 plus GST. Stargate intended to subdivide and develop it into olive groves and, in July 1998, obtained resource consent from the Far North District Council to do so. However, the company could not meet its financial commitments under the contract and, in October 1999, Mr Beckham exercised his right to cancel it. [9] The following April, he on-sold the property to Ocean View Olives Limited (Ocean View), which had been incorporated on 8 February 2000 for the purpose of buying the farm and carrying out the subdivision. Mr Beckham was the company's sole shareholder and director. The sale price was $1,600,000 plus GST. He did not declare this sum for income tax purposes. [10] In March 2004 the Commissioner of Inland Revenue re-assessed Mr Beckham's liability to pay income tax for the year ended 31 March 2000 under s CD1(2)(f) of the ITA at $377,033.92 plus interest. [11] Mr Beckham challenged the assessment and, in a decision dated 19 July 2005, Judge A A P Willy, sitting as the Taxation Review Authority, upheld that challenge, concluding, on the facts, that Mr Beckham was not the developer of the subdivision. In particular, the Authority rejected the Commissioner's contention that from August 1999 or thereabouts until the time that Ocean View was incorporated, Mr Beckham had taken over the subdivision. Instead the Authority found that the contracting work he did was on behalf of either Stargate or Ocean View. He expected to be reimbursed by Stargate, but it went into liquidation; he was therefore reimbursed by Ocean View.[12] But the Authority did not leave matters there. In its view, the evidence clearly established that the substantial increase in value of the property between 1992 and April 2000 was due to the granting of the resource consent by an amount of at least 20%. That meant that the Commissioner could assess Mr Beckham to pay income tax under the alternative ground of s CD1(2)(e). And, the reasoning went, as the Commissioner had power to do so, so too did the Authority, and it was not necessary to refer the matter back for re-assessment. However, in case he had not had sufficient opportunity to consider the values and expenses relied upon by the Commissioner to calculate the net taxable profit arising from the increase in value under s CD1(2)(e) and DJ141(1), leave was reserved to Mr Beckham to call further evidence or make further submissions on that point. [13] In the event, Mr Beckham elected not to take up that opportunity. Instead he lodged an appeal against the decision and the Commissioner cross-appealed. [14] On 12 September 2005 the Authority issued what it termed its "final decision", effectively endorsing its earlier decision, and assessing Mr Beckham's liability to pay income tax for the subject year at $77,237.37. [15] This second decision gave rise to Mr Beckham's second appeal, which was met by a second cross-appeal by the Commissioner. [16] In my view there are no material differences between the two appeals.Issues[17] The Commissioner did not appeal against the Authority's finding that he erred in determining that Mr Beckham was liable to pay income tax under s CD(1)(2)(f). [18] Although Mr Beckham's notice of appeal contains 10 points on appeal, nine of which were proceeded with, essentially, there are three issues for determination:i) The scope of the challenge proceedings and whether the Authority has jurisdiction to consider an alternative statutory ground of assessment. ii) Whether the decision of 19 July was a final or an interlocutory decision. iii) The merits of the substantive assessment under s CD(1)(2)(e)(iii). [19] The first two issues are intertwined. The answer to the first effectively determines the second.Scope of the challenge proceeding – was an alternative ground of assessment open to the Authority?[20] The appellant's primary jurisdictional argument is that the role and jurisdiction of the Authority came to an end once it had determined the taxpayer's challenge to the Commissioner's assessment under s CD1(2)(f). Thereafter there was no challenge requiring determination and thus, no basis to re-assess the same income under a different section. [21] This argument rests on the premise that the challenge considered by the Authority related solely to one issue: the validity of the assessment under s CD1(2)(f). It puts in focus the whole nature of the challenge procedure. [22] The starting point, from the appellant's perspective, is ss 13 and 13A of the Taxation Review Authorities Act 1994 (TRAA). [23] Section 13 prescribes the function of a Review Authority, namely: to sit as a judicial authority for hearing and determining objections and challenges— (a) To assessments of tax; and (b) To other decisions or determinations of the Commissioner—authorised by the Inland Revenue Acts.[24] Under s 13A an Authority is given general jurisdiction to hear and determine both objections and challenges that the TRAA and the TAA authorise it to hear and determine. [25] The appellant submits that these two sections grant an Authority the power to determine challenges and that there is no residual power or jurisdiction to act outside them. The appellant also relies upon ss 16 and 25 of the TRAA and s 138(K) of the TAA. [26] Section 16 provides the Authority with the powers necessary for performing its functions. It states that the procedure for the institution, hearing, and determination of any proceedings before an Authority must be consistent with the provisions of the TRAA but that, subject to them, an Authority may determine its own procedure. [27] Subsection (2) of s 16 provides that:For the purpose of hearing and determining any objection or challenge, an Authority shall have all the powers, duties, functions, and discretions of the Commissioner in making the determination.[28] Section 25(1) requires an Authority, on determining an objection or challenge, to give its decision in writing. [29] Section 138(K) states that:Determination of challenge not to affect other matters:The determination of a challenge by a hearing authority under this Part— (a) Relates solely to the matter that is the subject of the disputable decision being challenged; and (b) Does not affect the right of the Commissioner to make a disputable decision relating to a different matter and to amend the disputable decision being challenged in any way rendered necessary by the later disputable decision.[30] The appellant said that what he challenged was the assessment of the proceeds of sale of his farm under s CD1(2)(f) of the ITA. When the Authority issued its written decision on 19 July 2005 it determined that challenge. Thereafter, apart from directing the cancellation of the successfully challenged assessment, the Authority was functus officio. [31] On this argument, the decision to assess under s CD1(2)(e) and the actual assessment under that section delivered on 12 September, not being necessary to determine the discrete issue raised in the challenge, were made without jurisdiction. [32] Mr Willox submitted that this is too restrictive a view of the scope of a challenge. In his submission the Authority was correct in holding (at [159] of the decision) that s CD1(2)(e) had been raised in the challenge and that the Commissioner was not precluded from relying on it. [33] Challenges are dealt with under Part 8A of the TAA. The term "challenge" is defined in s 3 of that Act as meaning:a) To commence proceedings under Part 8A challenging a disputable decision; or b) The proceedings, – as the context requires.[34] "A disputable decision", as defined in s 3, includes an assessment. [35] "Proceedings" means:Proceedings commenced before a hearing authority under Part 8 or Part 8A; and includes a document that a tax law requires to be filed with a hearing authority, or to be served on a person, in connection with the proceedings.[36] The disputes resolution process followed in this case started with the issue by the Commissioner of a notice of proposed adjustment (NOPA), followed by a notice of response (NOR) from Mr Beckham. As there was no resolution of issues, on 21 February 2003 the Commissioner issued a statement of position and disclosure notice under s 89M of the TAA. That section provides that:89M Disclosure notices(1) Unless subsection (2) applies, the Commissioner may issue a disclosure notice in respect of a notice of proposed adjustment to a disputant at the time or after the Commissioner issues the notice of proposed adjustment. (2) The Commissioner may not issue a disclosure notice in respect of a notice of proposed adjustment if the Commissioner has already issued a notice of disputable decision that includes, or takes account of, the adjustment proposed in the notice of proposed adjustment. (3) Unless the disputant has issued a notice of proposed adjustment, the Commissioner must, when issuing a disclosure notice,— (a) provide the disputant with the Commissioner's statement of position; and(b) include in the disclosure notice— (i) a reference to section 138G; and (ii) a statement as to the effect of the evidence exclusion rule. (4) The Commissioner's statement of position in the prescribed form must, with sufficient detail to fairly inform the disputant,— (a) give an outline of the facts on which the Commissioner intends to rely; and (b) give an outline of the evidence on which the Commissioner intends to rely; and (c) give an outline of the issues that the Commissioner considers will arise; and (d) specify the propositions of law on which the Commissioner intends to rely. (5) If the Commissioner issues a disclosure notice to a disputant, the disputant must issue the Commissioner with the disputant's statement of position within the response period for the disclosure notice. (6) A disputant's statement of position in the prescribed form must, with sufficient detail to fairly inform the Commissioner,— (a) give an outline of the facts on which the disputant intends to rely; and (b) give an outline of the evidence on which the disputant intends to rely; and (c) give an outline of the issues that the disputant considers will arise; and(d) specify the propositions of law on which the disputant intends to rely. (7) If a disputant does not issue a disputant's statement of position in the prescribed form within the response period for a disclosure notice the disputant is deemed to have accepted the Commissioner's notice of proposed adjustment or the Commissioner's statement of position, as the case may require. [37] The Commissioner's statement of position addressed five issues including:• Whether the Taxpayer derived gross income from the sale of land pursuant to section CD1(2)(f) in his income tax year ended 30 June 2000;and• Whether the Taxpayer derived gross income from the sale of land pursuant to section CD1(2)(e) in his income tax year ended 30 June 2000.[38] In his statement of position issued on 22 April 2003, in response, Mr Beckham identified four issues, including these two. [39] The dispute was then referred to the Commissioner's adjudication unit. [40] In a letter dated 4 March 2004 to Mr Beckham's tax adviser, headed "Notice of final determination", the manager of the unit advised, inter alia, that:• Section CD1(2)(f) of the Income Tax Act 1994 is applicable to the gross income derived by Mr Beckham for the sale of the land.and:• Had section CD1(2)(f) not applied, the amount Mr Beckham derived from the sale of the land would have been gross income under section CD1(2)(e)(iii)(C) (subject to section DJ 14), as at least 20% of the profit derived from the sale of the land within 10 years of its acquisition by the [sic] Mr Beckham was due to a resource consent granted for the land subsequent to its acquisition.[41] This was followed, on 11 March 2004, by the issue of the notice of assessment showing Mr Beckham's re-assessed liability for the year ended 31 March2000, with a total payment due, after taking into account payments, transfers and interest, of $520,186.79. [42] Mr Beckham commenced the review proceedings under s 138B of the TAA on 30 April 2004. Section 138B relevantly provides that:138B When disputant entitled to challenge assessment(1) A disputant is entitled to challenge an assessment by commencing proceedings in a hearing authority if— (a) the assessment includes an adjustment proposed by the Commissioner which the disputant has rejected within the applicable response period; and (b) where the assessment is an amended assessment, an adjustment proposed by the Commissioner that is included in the assessment— (i) imposes a fresh liability (being a liability that was not included in an earlier assessment) in respect of a particular; or (ii) increases an existing liability (being a liability that was included in an earlier assessment but to a lesser extent) in respect of a particular; and (c) the disputant files the proceedings, in accordance with the Taxation Review Authority Regulations 1994 (or any regulations made in substitution for those regulations) or the High Court Rules, within the response period following the issue of the relevant notice of assessment.[43] The requirements of the section were satisfied in this case. [44] Significantly, for present purposes, in his notice of claim the appellant refers to both the letter of 4 March 2004 and the notice of assessment issued on 11 March and says that he:challenges those disputable decisions (the making and issuing of the assessment) on the following grounds:• Section CD1(2)(f) undertaking or scheme;• CD1(2)(e)(iii)(C) and (D) resource consent.[45] In relation to the latter ground he says:3.7 the amount derived from the sale of the farm to Ocean View Olives Limited was not due to either: 3.7.1 the resource consent granted in relation to the farm under the Resource Management Act 1991 after the acquisition of the farm by Stargate Holdings Limited; or 3.7.2 the likelihood of any such consent being granted. 3.8 the amount derived from the sale of the farm to Ocean View Olives Limited was due to the value of the farm as at 1 st July 1998 for potential olive production but prior to resource consent for such a use, and excluding the likely value of such a consent as was granted on 14 July 1998. 4. In the event that section CD 1(2)(e) applies, then the Commissioner has accepted that the Disputant would be entitled to a deduction under section DJ 14, but the deduction has not been calculated by the Commissioner, and hence is not subject to this challenge.[46] He also annexed, as he was required to do by reg 8 of the Taxation Review Authority Regulations 1998, copies of the relevant statements of position. [47] In his notice of defence, dated 30 June 2004, the Commissioner addressed not only s CD1(2)(f), but also, "in the alternative":s CD(1)(2)(e) [sic] in the event that s CD1(2)(f) does not apply.[48] While acknowledging the references to s CD1(2)(e) in these documents, the appellant contended that they merely provide background material. [49] Mrs Hinde's principal thesis was that the scheme of the tax legislation is for the narrowing of tax disputes. Thus, s 89A(1) of the TAA states that the purpose of Part IV of that Act is to establish procedures that will:(a) Improve the accuracy of disputable decisions made by the Commissioner under certain of the Inland Revenue Acts; and (b) Reduce the likelihood of disputes arising between the Commissioner and taxpayers by encouraging open and full communication— (i) To the Commissioner, of all information necessary for making accurate disputable decisions; and (ii) To the taxpayers, of the basis for disputable decisions to be made by the Commissioner; and(c) Promote the early identification of the basis for any dispute concerning a disputable decision; and (d) Promote the prompt and efficient resolution of any dispute concerning a disputable decision by requiring the issues and evidence to be considered by the Commissioner and a disputant before the disputant commences proceedings.[50] However, she said, there is no suggestion in s 89A that everything covered by the formal NOPA and NOR are to form part of the challenge to the assessment. Many possibilities are raised prior to an assessment but are finally reduced to a particular matter by quantification of the tax assessed. The Commissioner chooses the ground of assessment and the taxpayer challenges that assessment. [51] As counsel saw it, the question is what is permitted in the challenge, as distinct from what is mentioned in the notice of claim. While the notice of claim referred to the alternative potential basis of assessment under s CD(1)(2)(e), it also noted that tax had not been calculated under that section and therefore was not subject to the challenge. [52] In the appellant's submission, if a challenge can be defined as including all matters that the parties include in their pleadings, the statutory context of tax challenges is effectively ignored. [53] Furthermore, Mrs Hinde argued, if the Commissioner was permitted to record a "fall-back" position on the chance that his assessment was successfully challenged, the taxpayer would be placed in an impossible situation. Not only would the time and costs involved in preparing objections be increased, so too would the uncertainty, as all potential bases of assessment mentioned in the disputes resolution phase in Part IVA of the TAA would need to be covered. [54] She submitted that the purpose and effect of s 138G of the TAA, relied on by the Commissioner, is consistent with this restrictive view. [55] Section 138G(1) states that:138G Effect of disclosure notice: exclusion of evidence(1) Unless subsection (2) applies, if the Commissioner issues a disclosure notice to a disputant, and the disputant challenges the disputable decision, the Commissioner and the disputant may raise in the challenge only— (a) The facts and evidence, and the issues arising from them; and (b) The propositions of law,— that are disclosed in the Commissioner's statement of position and in the disputant's statement of position.[56] Mrs Hinde submitted that rather than expanding the scope of the challenge, s 138G limits it, subject to applications under subs 2 – and none was made here. [57] It seems to me that the outcome of the jurisdictional dispute turns not so much on what the disputable decision or assessment involved – whether it was limited to the actual assessment under s CD1(2)(f) or could be described more generally as the assessment of Mr Beckham's liability to pay income tax under s CD1(2) on the profits or gains from the sale of his land – but rather what was involved in the challenge. [58] To assist in answering that question, it is appropriate to consider the approach which the Courts took to "objection proceedings" under the Land and Income Tax Act 1954 and the Income Tax Act 1976 and compare that with the approach taken by the Court of Appeal in Zentrum Holdings to challenge proceedings under the TAA. [59] In Farnsworth, the Commissioner assessed income tax under one section of the Land and Income Tax Act 1954, then, during the hearing of the taxpayer's case stated to the High Court, abandoned his claim that the assessment was justified under that section and, instead, sought to justify it under another. The Court of Appeal held that as s 36 of the Inland Revenue Department Act 1974 precluded the taxpayer from responding, principles of fairness and natural justice prevented the Commissioner from raising a new ground for the first time in the High Court, after the time limit for doing so had expired. Relevantly for present purposes Richardson J said, at 433-434:There are two features of this statutory scheme which call for some emphasis at this point. The first is that the proceedings whether in the TaxationReview Authority or the High Court do not involve a general review of the liability of the objector for income tax in the particular year. It is the original objection which is referred to the Authority or the Court and "the questions arising for the determination of the Court" (or the Authority) are necessarily limited to those arising from the particular objection. In short, the inquiry, whether before the Court or the Authority, is specifically and directly confined in that way. It is not a general appeal where liability to tax is at large. The objector selects the ground on which he wishes to challenge the assessment and that decision on his part determines the scope of the inquiry into the correctness of the assessment.[60] In CIR v Zentrum Holdings Keane J relied upon this decision to prohibit the Commissioner from arguing on appeal that the taxpayer's claim for deduction of interest paid to another company were shams, holding that he was confined to the ground of illegitimate tax avoidance upon which the taxpayer was assessed, and which the Taxation Review Authority had dismissed. [61] Justice Keane's decision was overturned by the Court of Appeal with the Court determining that the "Farnsworth principle" had no application to the disputes procedure under the TAA. [62] In considering the current legislative scheme by reference to the way in which the relevant dispute between the Commissioner and Zentrum proceeded, and noting that the Commissioner did not exercise his discretion to issue a disclosure notice under s 89M in that case, the Court commented at [30], with reference to s 138B, that:This section makes it clear that the nature of the challenge is an attack on the assessment itself rather than a consideration of the taxpayer's NOR. On this basis the current scheme differs from that considered in Farnsworth.[63] And the Court reiterated this point at [33], saying in relation to the argument that, in the context of that case, an assessment must be treated as including its grounds: the challenge process involves a challenge to the assessment rather than a re-consideration of the taxpayer's objection. If the Commissioner and taxpayer were to be confined to the positions each had adopted in either the pre-assessment process or up to the time when the challenge proceedings were lodged, one would expect this to be the subject of direct legislative provision.[64] Finally, the Court considered s 138G, which it noted did not apply in the case before it, and commented, at [35]: The existence of a specific evidence exclusion rule which applies only in specified circumstances rather suggests that outside those circumstances there is no comparable implied and absolute rule confining the parties to the positions formally taken in their NOPAs and NORs. Further – and perhaps more importantly – the existence of the discretion provided for by s 138G(2) to waive the evidence exclusion rule where a disclosure notice has been given is flatly inconsistent with the existence of such an implied and absolute rule.[65] Mrs Hinde made much of the Court of Appeal's comment in Zentrum that the "challenge is an attack on the assessment itself", saying that:The Disclosure Notice confined the pool of "facts, evidence, propositions of law and issues" to those contained in the NOPA and NOR. However, the challenge is only concerned with the actual assessment, so, where a number of alternative bases of assessment were floated during the dispute process only those that are compatible with the chosen basis of assessment remain for argument in the challenge. Here a different choice of section under which to assess would have resulted in a different amount of tax being assessed. The Commissioner did not rely on several grounds for the assessment he made, whether cumulative or overlapping or co-terminus. An assessment may be capable of being supported by several different provisions, but they must all arrive at the identical amount assessed. Where an assessment can be supported under several provisions there is still only one assessment. Where there are several justifications for an assessment all of those propositions or taxing provisions can be encompassed in the resultant challenge, subject to any restriction created by any Disclosure Notice. By contrast the potential alternative, but never actualised, assessment could not by its very nature exist simultaneously with the actual assessment made and challenged. An alternative assessment is not an actual assessment, as it never comes into being, and accordingly is not capable of being challenged. Where the assessment made represents the result of a choice made between alternatives, then those rejected alternatives do not support the assessment made, and can not be considered as part of the challenge. Those rejected or discarded alternatives do not spring up again upon the failure of the challenged assessment, and the Commissioner's original options of assessment do not revive.[66] I reject these submissions. [67] First, the distinction drawn by the Court of Appeal in Zentrum between an attack on the assessment itself and consideration of the taxpayer's objection needs tobe seen in the context of that case. What the Court was saying was that under the current scheme the emphasis is on the documents in the challenge stage of proceedings rather than the earlier dispute resolution stage. But, because in Zentrumthere was no disclosure notice, and therefore, no statements of position, the only relevant document in the challenge proceeding prior to the notice of claim would have been the assessment. [68] Secondly, the effect of the Court of Appeal decision in Zentrum was to allow the Commissioner to raise for the first time on appeal issues which, not only had not been raised in the notice of claim or before the Review Authority, but had, in fact, never been raised before. Accordingly, it was not a case of confining the Commissioner to the position he had adopted in the pre-assessment process or up to the time when the challenge proceedings were lodged, but of allowing him to expand the grounds on which he relied. It is therefore somewhat extraordinary to suggest that the Legislature intended that where the Commissioner has issued a disclosure notice and statements of position have been filed, he should not be allowed to rely upon a ground addressed in those documents, whether or not it was the ground on which a taxpayer's liability was ultimately assessed. [69] In my view, the plain meaning of s 138G(1) is that where a disclosure notice is issued and the taxpayer subsequently challenges the assessment, the matters in issue are limited to the legal and factual issues identified in these statements of position (as distinct from the NOPA and NOR), but that all of those issues are legitimate matters of dispute in the challenge proceedings. [70] Such an interpretation is consistent with the Court's emphasis on fairness and the observance of natural justice: see Cooke P Farnsworth at 432. [71] A relevant guiding principle is whether the taxpayer would be taken by surprise. Thus, Somers J said in Farnsworth at 438: the right to object and the limitation of the objector to the grounds of his objection predicate knowledge by the objector of the basis of assessment. Without such understanding no intelligible objection could be made.[72] Applying that principle to the facts of the present case, there can be no suggestion that the appellant was taken by surprise by an alternate ground of assessment which he had no opportunity to address. Far from it; he was given every opportunity to do so. [73] The fact that an assessment under s CD1(2)(e) would result in a different amount of tax being assessed does not seem to me to be a plausible distinguishing factor. And Mrs Hinde did not provide any authority to justify her assertion that an assessment on alternative grounds can only be considered if it results in the assessment of the same amount of tax. As Mr Willox pointed out, the alternative ground of assessment put forward by the Commissioner resulted in a smaller liability than the principal ground. Both parties had the opportunity to call evidence on each ground of assessment. The Commissioner's witnesses gave evidence to support an assessment under s CD1(2)(e) but the appellant chose not to cross-examine them or to call his own evidence on that issue. [74] It is interesting to note that, in his notice of claim, the appellant himself sought review not only of the actual assessment under s CD1(2)(f) but also the preceding letter in which reliance was also placed on s CD1(2)(e). [75] As Mr Willox said, he is therefore hoist by his own petard. He set the ambit of the challenge. He can not now complain when the Authority addressed both issues. [76] Given my conclusion that the Authority had jurisdiction to consider the alternative ground, it follows that it also had the power, like the Commissioner, if it found liability established to go on and re-assess the quantum of tax payable by Mr Beckham under that ground. The statutory basis for this power is s 16(2) of the TRAA (at [27] above) and s 138P of the TAA, which provides that:138P Powers of hearing authority(1) On hearing a challenge, a hearing authority may— (a) Confirm or cancel or vary an assessment, or reduce the amount of an assessment, or increase the amount of an assessment to the extent to which the Commissioner was able to make anassessment of an increased amount at the time the Commissioner made the assessment to which the challenge relates; or (b) Make an assessment which the Commissioner was able to make at the time the Commissioner made the assessment to which the challenge relates, or direct the Commissioner to make such an assessment.[77] The Authority's comments at [166]-[167] of the decision are relevant in this regard:I am not referred to any authority but it seems plain to me that in considering the jurisdiction created by s 138P it naturally reads that the power to "confirm, cancel, or vary" and that which enables the Authority to make an assessment which the Commissioner was able to make, apply to the hearing of the "the proceedings". The section is not to be read as restricted to power to intervene only with the particular assessment before the Authority. To read it in that way would rob subs (b) of any meaning. This construction is in my view supported by the wide powers contained in s 16(2) of the Taxation Review Authorities Act. To have "all the powers of the Commissioner" includes the power to make assessments.[78] It follows that as the Authority could legitimately assess the appellant upon an alternative ground, that ground formed part of the "subject matter" of the "disputable decision" being challenged in terms of s 138K and the challenge was not finally "determined" until that further assessment happened. Accordingly, applyingM & J Wetherell Co Ltd v TRA (2004) 21 NZTC 18,924, the September decision, rather than the July one, must be taken as the final "determination" for appeal purposes. In practice, however, this finding is of little moment as any consideration of the merits of the September determination will necessarily require consideration of the antecedent events, discussed in the July decision.Application of s CD1(2)(e)[79] I turn now to consider Mr Beckham's appeal against the manner in which the Authority applied s CD1(2)(e)(iii) and the assessment made under that section which, relevantly, states:CD1 Profits or gains from land transactions(1) Any amount derived from the sale or other disposition of any land, being an amount to which this section applies, is gross income.(2) For the purposes of subsection (1), the gross income of any person includes the following amounts— (e) Any amount derived from the sale or other disposition of land (not being an amount which is gross income under any of paragraphs (a), (b), (c), (d), and (f)), if— (i) The land was disposed of by the taxpayer within 10 years after the date on which it was acquired by the taxpayer; and (ii) The total amount derived by the taxpayer from the disposition exceeds the cost of the land; and (iii) In the opinion of the Commissioner at least 20% of the excess is due to any one or more of the following: (A) The rules of an operative district plan under the Resource Management Act 1991 which relate to that land or any change of those rules after the acquisition of that land by the taxpayer; or (B) The likelihood of the imposition of such rules or of any change to such rules; or (C) Any consent granted in relation to that land under any provision of that Act or any decision of the Environment Court made in relation to that land under that Act, where the consent was granted or that decision made after the acquisition of that land by the taxpayer; or (D) The likelihood of any such consent being granted or of any such decision being made; or (G) Any change or occurrence of a similar nature to any of the changes or occurrences referred to in any of the preceding subparagraphs or the likelihood of any such change or occurrence in respect of or in relation to that land. [80] Applying this section to the facts of this case, the appellant accepts that:• He derived $1.6 million from the sale of the farm in 2000;• On the basis of the Authority's finding that subs (f) did not apply, that amount was not gross income under any of s CD1(2)(a), (b), (c), (d) or (f);• The land was disposed of within 10 years of acquisition;• The total amount derived exceeded the cost of the farm;• The core tax in dispute is $77,237.37. [81] The focus of the substantive appeal is on whether it was open to the Authority, on the evidence, to find that at least 20% of the excess of the sale proceeds over the cost of the land was derived from a resource consent, whether actual or potential. [82] The Authority made the following factual findings in relation to this issue:[190] On the evidence, I am satisfied that it is proved as follows: i The disputant bought the subject land between March 1992 and August 1993 for a total cost of $445,525. ii He sold the land to [Stargate] by an unenforceable oral agreement in May 1997 later evidenced by enforceable written contracts. iii [Stargate] applied to the Far North District Council for resource consent to subdivide the property in two stages. The Council granted consent on 14 July 1998. iv Appeals from that decision were settled by late January 1999. The consent although varied later in relation to the roading layout formed the basis of the physical subdivision later undertaken by [Ocean View]. v On 2 February 1999 the property was valued (as at 1 February 1999) in its subdivided form of 45 allotments at $5,140,000 (not allowing for the value of olive plantings). The valuer notes: "The above valuation is not a valuation of the property in existing titles as at today's date." [191] He further notes that the proposed subdivision is at an early stage with much work to be done. No account is taken of the costs of completingthe subdivision. The purpose of the valuation is as a basis for obtaining mortgage finance: vi The valuer revalued the property on 13 May 1999. The purpose of this valuation was to fix the shares of the disputant and his wife who were then in a matrimonial property dispute. vii On 23 February 2000 the same firm was instructed to value the property as at 1 July 1998. This is before the resource consent was granted. The figure arrived at was $740,000 for a farm property or $1.6 million "value on a hypothetical subdivision for olives". The "Adopted value for sale purposes" was $1.2 million. viii At about that time in late 1999, early 2000, the disputant gave evidence, and it is not contraverted, that a Mr T offered to buy the property unsubdivided for $1.6 million. The disputant picked this figure in fixing the consideration for the sale to [Ocean View] ix On the same day 23 February 2000 Mr Garton valued the property as at that date. In evidence, he conceded that the valuation was largely for marketing and could not be relied on by a mortgage [sic] for lending purposes. This valuation adopts the same method used in the February 1999 valuation and arrives at very similar figures.[83] On the basis of these findings, the Authority concluded:[192] What emerges clearly from this series of valuations is that with the exception of the matrimonial property valuation (the amount of which is an embarrassment to the disputant because it is so low) there has been a substantial increase in the value of the property over the period 1992 to April 2000. The evidence is clear beyond any doubt that this increase in value is "due to" the granting of the resource consent by an amount of "at least 20%". [193] I am satisfied that in using the unhappy description "due to" in subsection (e) Parliament intended to mean "resulting from". On the facts as I find them to be, the increase from $445,525 to $1.6 million can only have resulted from the resource consent and the probability is by significantly more than 20%. [194] If the disputant had wished to establish otherwise (for example that more than 80% of the increase was attributable to inflation in land values unrelated to the resource consent), it was open to him to do so. Having the onus of proof on such a positive assertion he has failed to discharge it. Counsel's submission that it was for the Commissioner to call evidence of the value added by the resource consent reverses the statutory onus of proof and is therefore rejected.[84] The appellant submitted that, in reaching these conclusions the Authority erred in that:• It did not properly distinguish between the value of the property for various uses: as a farm; as a farm with potential for a change of use from farming to olive grove subdivision but with no resource consent; and as a farm with resource consent;• In applying s CD1(2)(e)(iii), the Authority failed to first quantify the increase in value of the farm which was due to the granting or likely granting of a resource consent before concluding that the 20% threshold had been met. In particular, the Authority did not point to competing evidence of value, other than that which the appellant provided himself. Without explicitly comparing this value against the proceeds, the Authority could not determine whether the 20% threshold in s CD1(2)(e)(iii) was satisfied;• A valuer never addressed the potential value of the farm with a resource consent and there was no evidence to support the conclusion that the increase in value was due to the existence or likely existence of a consent for the purposes of s CD1(2)(e)(iii);• It misdirected itself by assuming that the 20% threshold referred to in s CD1(2)(e)(iii)(C) and (D) meant that it was required to form a view as to the percentage "probability" of the increase in value being due to resource consent, when in fact no such probability assessment was required;• It erred in determining that the appellant had failed to discharge the onus of proof relating to the source of the increase in farm value. He provided information relating to the value of the property as a farm, for a development without resource consent, and for a development with consent; he did not need to take further steps to discharge the onus to the balance of probabilities.[85] These points overlap. [86] The critical evidence as to the value of the farm was given by Mr Garton. In his retrospective valuation of February 2000 he adopted two approaches, valuing the property first as a normal farm and, secondly, as a hypothetical subdivision. [87] The farm valuation approach, based on analysed sales of other properties, indicated a value, as at 1 July 1998, of $740,000 excluding GST. Mr Garton said that this reflected the higher market in that year as compared with the market in May 1999 when the matrimonial property valuation was undertaken. [88] On the hypothetical subdivision approach the property was considered through the eyes of a purchaser/developer. This valuation was calculated on two sets of assumptions. The first valuation indicated a block value of $1.6 million. The alternative, more conservative valuation, using a slightly less optimistic approach and with an extended selling period, gave a valuation nearer to $1.2 million, which was the figure Mr Garton adopted for sale purposes. [89] At the commencement of his report detailing these valuations Mr Garton noted:As instructed I inspected this property recently to determine the value for sale purposes. The valuation is to take into account the potential for subdivision with an Olive Grove in mind, but is to be effective prior to any Resource Consent Approval to Subdivision.[90] Under cross-examination Mr Garton accepted that what he really meant in saying that the valuation was to be "effective prior to resource consent" was that in valuing the property he went back to a date prior to the resource consent and took out all the costs and also the associated profit and risk. That meant that if a purchaser paid $1.6 million for the property and everything worked out, after developing it he should gain a profit of $1.3 million. Significantly, for present purposes, he said that the difference between the value of the property for sale as a farm of $740,000, and the valuation using the hypothetical subdivision approach was:the potential of a changing land use.[91] I am satisfied that it was open to the Authority to hold, on the basis of this evidence, that at least 20% of the difference between the value of the property as a farm and the figure of $1.6 million, at which it was sold to Ocean View, was attributable to resource consent factors. Indeed it seems to me that this was the only inference to draw from the difference between the two valuations. [92] The appellant purported to draw a distinction between the valuation of the property as a farm, as a farm with potential for development without resource consent, and as a farm with potential for development with resource consent. He claimed that Mr Garton's retrospective valuation of $1.6 million fell within the second category and that evidence of the property's value with consent was provided by the contract to sell to Stargate for $2.1 million. [93] The Authority obviously treated the second and third categories as more or less the same and disregarded the Stargate figure because the sale at that price did not eventuate. And these conclusions were certainly available to it. [94] Whatever Mr Garton said, it is apparent, when one considers the manner in which he reached his hypothetical subdivision value, that he did not disregard resource consent considerations. To reach the figure of $1.6 million he started with a gross value for 45 developed sections (excluding olive trees) of $4.8 million (which is very similar to the 23 February 2000 figure of $4.875 million) and deducted from it the costs of sales, complying with subdivision conditions, a use of money interest charge, profits and risk to the developer of 28.5%, and a contingency figure. [95] I agree with Mr Willox that this approach pre-supposed that resource consent would be available; indeed, the subdivision could not proceed without it. The farm value approach, on the other hand, excluded any potential for subdivision. Accordingly, I accept that the Authority was not in error in holding that the hypothetical subdivision approach represented the value of the land with the likelihood that resource consent would be granted. [96] Nor, in the circumstances, do I consider that the Authority erred in finding that the value of the property with the potential for consent was more or less thesame as that which it would have been once consent was granted – given that that happened only 13 days later. In other words, that there was no material difference between the valuation under subpara (C) or (D). I also accept that the Authority was not required to articulate which of the categories (A)-(G) it took into account. All that the section requires is that the Commissioner be satisfied that 20% of the excess is due to one or more of these categories. [97] The appellant's criticism of the Authority for adopting a so-called probability assessment is misconceived. There is nothing in either decision which leads me to think that it misunderstood requirements of s CD1(2)(e)(iii). Clearly, the Authority thought that at least some part of the increase was attributable to the resource consent. By saying "and the probability is by significantly more than 20%", the Authority was not saying that it was more than 20% satisfied, but rather, that well in excess of 20% of the increase in value would have resulted from the resource consent and hence, that the case clearly fell within the parameters of the section. [98] It follows from my comments above that I also reject the appellant's criticism of the Authority's alleged failure to either quantify or set out the principles for quantifying the amounts of the proceeds of sale that were referable to various land uses and the failure then to calculate the threshold amount for liability pursuant to s CD1(2)(e)(iii). [99] I am satisfied that it applied the two-step approach endorsed by Thorpe J inSwan v CIR (1979) 4 NZTC 61,515 at 61,524-61,525. On the basis of the valuation and the previous offer it took the sale figure of $1.6 million, rather than $1.2 million, as the market value for the purposes of step one. I accept, in relation to step two, that in [193] of its July decision it should have taken the figure of $740,000 plus perhaps some adjustment for inflation, rather than the 1992 purchase price of $445,525 as the market value of the land at the date of re-sale without resource consent and without the likelihood of consent – although I note that Mr Willox said that this correction would not affect the amount of tax payable. When $740,000 is deducted from the market price of $1.6 million an excess of $860,000 is left. This is approximately 74% of the increment in value from 1992 to April 2000 – significantly more than 20%.[100] Essentially, the Authority's decision on the merits depended on the view it took of the evidence. It did not accept Mr Garton's evidence at face value. It did not have to. I accept Mr Willox's submission that the valuation speaks for itself. I am satisfied that, in reliance on it and all the other evidence, it was open to the Authority to determine that the provisions of s CD1(2)(e) apply in this case. [101] Finally, there is the question of the onus of proof. The appellant accepts that he had the onus of showing that the Commissioner's alternative assessment was wrong. As the Authority said, the appellant had the opportunity to produce evidence about the effect of inflation on increases in property values but did not do so. It therefore properly found that the appellant had failed to discharge the onus on him.Conclusion[102] I have concluded that neither the Farnsworth principle nor the relevant statutory scheme precluded the Authority, standing in the shoes of the Commissioner, from assessing the appellant under an alternative ground, having upheld the appellant's challenge to the first ground. The alternative ground of assessment was clearly foreshadowed in the communications between the parties and there was no procedural impropriety or unfairness involved in applying it. It therefore fell legitimately within the scope of the challenge proceedings. I also reject the appellant's claim that the issues were fully determined at the point where the challenge to the first assessment was upheld, and hence there was no judicial basis for the alternative assessment or the September decision. [103] It follows that the September decision constitutes the final determination of the issues by the Authority, and that any right of appeal must be from that decision. [104] In terms of the merits of the assessment, the appellant has failed to persuade me that I should interfere with the factual conclusions of the Authority. I am satisfied that the Authority had before it all the necessary and relevant documentary evidence, as well as the benefit of assessing the witnesses in person. I am not convinced that the Authority erred in reaching the substantive conclusions that it did.[105] Accordingly, the appeal is dismissed. [106] Leave is reserved to the parties to return to this Court within 21 days if they are unable to resolve the issue of costs, which the Commissioner, being successful on this appeal, is entitled to. Although he cross-appealed, in the event the cross- appeal did not raise any independent issues which require determination. [107] If, thereafter, any residual issues remain concerning the quantification of liability, they are to be addressed by the Authority. M A Frater J