KING v COMMISSIONER OF INLAND REVENUE [2022] NZHC 2432

KING v COMMISSIONER OF INLAND REVENUE [2022] NZHC 2432 [22 September 2022]IN THE HIGH COURT OF NEW ZEALANDNAPIER REGISTRYI TE KŌTI MATUA O AOTEAROAAHURIRI ROHECRI 2022-441-11[2022] NZHC 2432BETWEEN SHANE JOHN KINGAppellantAND COMMISSIONER OF INLANDREVENUERespondentHearing: 18 August 2022Counsel: D J O'Connor for AppellantC R Walker for RespondentJudgment: 22 September 2022JUDGMENT OF MALLON JIntroduction[1] The appellant, Shane King, faces 10 charges of evading or attempting to evadethe assessments or payment of tax by him or another person.1 They relate to the failureof Mr King's company, Forest Export Management Limited (FEM), to account forGST. Mr King was an undischarged bankrupt for part of the period covered by thecharges. He applied to the District Court to have these charges dismissed on the basisthat a bankrupt cannot file returns.2 The District Court declined to dismiss thecharges.31 Tax Administration Act 1994, s 143B(2).2 He also applied to have them dismissed on other grounds that were unsuccessful and not pursuedon appeal. He was originally charged with aiding and abetting FEM to knowingly not provideinformation (pay as you earn (PAYE) returns and employer monthly schedules and deductionforms) between April 2016 and April 2017. These charges were withdrawn and dismissed.3 Commissioner of Inland Revenue v King [2022] NZDC 8682 (per Judge B M Mackintosh) at [51].[2] The appellant seeks leave to appeal the District Court's decision on a questionof law.4 He poses two questions of law:(a) Whether a bankrupt can be liable for an omission to act (failing to fileGST returns on behalf of a company) when he had a legal duty not toact and it was a criminal offence under s 149 of the Insolvency Act 2006to do so without leave from the Official Assignee or a court order.(b) Whether a bankrupt can be an agent for a company and liable to payGST for the company when a bankrupt is an incapacitated person unders 58 of the Goods and Services Tax Act 1985.[3] I grant leave to appeal the District Court decision. I accept that the appellanthas raised legal questions that are potentially relevant to whether the 10 charges canproceed. It is desirable to have the legal questions determined before Mr King is triedon these charges. I note that the questions of law stated by the appellant may beamended or restated by this Court if it is necessary or desirable to do so.5BackgroundSummary of facts[4] FEM was incorporated on 3 March 2010. Mr King was the sole director ofFEM from 1 June 2013.[5] FEM held contracts with forest owners to fell and remove pine trees for export.It was registered for GST on a two-monthly basis from 3 March 2010 and had a taxableactivity from that date. FEM accounted for GST on an invoice basis from 28 August2014 and was required to file GST returns by the relevant due dates. From 2012 untilJuly 2015, FEM engaged an accountant to comply with its GST obligations.[6] From September 2015, FEM continued to trade. GST invoices were issuedunder FEM's name and its GST number. However, customers receiving these invoices4 Criminal Procedure Act 2011, s 296(2) and (3)(b).5 Section 299.were required to make payment into Mr King's personal account instead of FEM'sbank account.[7] Mr King was adjudicated bankrupt on 26 May 2016. Mr King did not obtainthe Official Assignee's permission to manage or control FEM following hisbankruptcy. He continued to issue invoices to customers under FEM's name, chargingGST and using FEM's GST number. He received payments from customers. Heretained the GST component of the invoice and did not file GST returns for them.[8] For the GST periods ending between 30 September 2015 and 31 March 2017,10 GST returns were due: on 28 October 2015, 15 January 2016, 28 February 2016,7 May 2016, 28 June 2016, 28 August 2016, 28 October 2016, 15 January 2017,28 February 2017 and 7 May 2017. Although Mr King continued to issue GSTinvoices under FEM's name and using FEM's GST number, he did not file GST returnsfor these 10 GST periods. Inland Revenue has determined that GST of at least$38,932.33 ought to have been paid over these GST periods.[9] On 3 October 2019 Mr King was automatically discharged from bankruptcy.[10] On 7 September 2020 Inland Revenue administratively ceased FEM's GSTregistration and backdated this to 31 March 2016.2018 conviction[11] On 23 July 2018 the Official Assignee brought three charges against Mr King.These charges were for: concealing the contents of two bank accounts; wilfullymisleading the Official Assignee; and failing without reasonable excuse to complywith s 149 of the Insolvency Act 2006 by taking part in the management or control ofa business without the consent of the Official Assignee or the Court. He pleaded guiltyto the charges and on 5 December 2018 he was sentenced to 150 hours' communitywork.GST charges[12] On 18 November 2020 Inland Revenue charged Mr King with several offences.Some of the charges were subsequently withdrawn or dismissed by the District Court.6The remaining charges relate to GST.[13] There are two charging documents. As currently framed they each allege:5 x offences against s 143B(2) of the Tax Administration Act 1994 in that heevaded or attempted to evade the assessments or payments of tax by the personor another person under a tax law to the sum of for the Goods and ServicesTax periods set out in the attached schedule.[14] The first of these (for alleged offending between 29 October 2015 and 30 June2016) was for a sum of $17,901.11. The second of these (for alleged offendingbetween 29 August 2016 and 9 May 2017) was for the sum of $21,742.22. TheSchedules to each of them set out the details of the five offences covered by thecharging document with dates for the relevant GST periods, the date the allegedoffence was committed and the amount of tax evaded for each period. The earliestcharged offending was for the period ended 30 September 2015, with a date the offencewas committed of 29 October 2015 and GST evaded for that period of $770.09. Thelatest was for the period ended 31 March 2017, with a date the offence was committedof 8 May 2017 and GST evaded for that period of $3,996.District Court[15] Mr King sought to have these charges dismissed on several grounds. Therelevant ground to this appeal was that he could not be liable for evading GST because,pursuant to s 149 of the Insolvency Act, it was a criminal offence for him, as abankrupt, to file returns.[16] The Judge regarded this as an argument that it would be an abuse of process toallow the charges to proceed.7 She considered that, as Mr King was running FEM andinvoicing for GST on behalf of FEM, he was liable to pay GST as FEM's agent.8 The6 Commissioner of Inland Revenue v King, above n 3, at [31]–[33] and [50].7 At [11].8 At [15].charges were therefore fairly open and Inland Revenue was not acting with animproper motive even though filing the returns would create liability under theInsolvency Act.9 It would also be contrary to the interests of justice if a bankrupt whocontrolled or managed a company to some degree, and who did not file tax returns,could not be charged for evading tax.10[17] The Judge also considered that there was a prima facie intention to evade taxin relation to the four charges pertaining to the period before Mr King was adjudicatedbankrupt. These charges related to GST returns due on 29 October 2015, 16 January2016, 29 February 2016 and 8 May 2016. As the charges were not filed until 2020,the returns had been outstanding for over five years. This was prima facie evidenceof an intention to evade tax in the Judge's view.11Appeal[18] On appeal, Mr King submits that the actus reus of the charges is the failure tofile GST returns. This is because the charge refers to evading or attempting to evadetax "under a tax law" and the Schedules specify the dates that GST returns were duebut were not filed. Mr King submits that the Judge's focus on whether the chargeswere an abuse of process meant that she failed to consider whether Inland Revenuecould prove the actus reus.[19] Mr King says that Inland Revenue cannot prove the actus reus because he hadno duty to file the GST returns. Rather, he had a duty not to file them as it would bea criminal offence to do so without the Official Assignee's consent or a court order.He says the Official Assignee and Inland Revenue knew that no returns had been filed.The Official Assignee was in control of the company when Mr King was bankrupt anddid not give consent to Mr King to file returns on behalf of FEM. Further, the OfficialAssignee and Inland Revenue could have, but did not, apply for a court order allowinghim to file the returns.9 At [16].10 At [17].11 At [44]–[49].[20] I do not accept this submission. The charges are brought under s 143B(2) ofthe Tax Administration Act 1994. This provides that "[a] person who evades orattempts to evade the assessment or payment of tax by the person or another personunder a tax law commits an offence". The charged offences are of Mr King evadingor attempting to evade the assessment or payment of tax (GST), by a person (Mr King)or another person (FEM), under a tax law (the Goods and Services Tax Act) for theperiods set out in the Schedules. The Schedules set out the GST periods over whichGST was liable for assessment and the dates the GST returns were due but not filed.[21] The offence is therefore proven if Mr King intentionally evaded or attemptedto evade the assessment or payment of GST by FEM under the Good and Services TaxAct.12 Inland Revenue alleges that Mr King issued GST invoices to FEM's customersusing FEM's name and GST number; received payments from those customers,including a GST component, that were paid into the bank account directed on thoseinvoices which was Mr King's personal bank account; used the funds received,including the GST component, for his or FEM's purposes; FEM was liable to accountto Inland Revenue for the GST and to file returns whether FEM was registered forGST or not; and neither FEM nor Mr King accounted for GST or filed returns.[22] If Inland Revenue proves these facts for the relevant periods, then the actusreus is proven. I therefore do not accept the submission that the actus reus of theoffence cannot be proven. The charges will be proven if the mens rea of intentionallyavoiding the payment of tax is also proven.[23] Mr King further submits that the Judge found that Mr King was liable to payFEM's GST returns himself. He says the Judge's reasoning was that, because FEM'sGST deregistration had been backdated to 31 March 2016, Mr King became liable topay the GST himself as FEM's agent. He submits that the Goods and Services TaxAct does not create retrospective criminal liability for a bankrupt if a company isderegistered for GST and that deregistration is backdated by Inland Revenue. Herepeats that, as a bankrupt, he was incapacitated from, and therefore not liable for,paying the GST returns.1312 See Goods and Services Tax Act 1985, s 2 (definition of "person") which includes a company.13 Mr King relies on Goods and Services Tax Act, s 58.[24] Section 51B of the Goods and Services Tax Act provides:51B Persons treated as registered(1) For the purposes of Parts 3 and 6, and of Part 9 of the TaxAdministration Act 1994, the following are treated as registeredpersons making supplies in the course or furtherance of a taxableactivity:(a) a person who is not otherwise a registered person but whosupplies goods or services, representing that tax is charged onthe supply:(2) If a person referred to in subsection (1) represents that tax is beingcharged on a supply that they make in a taxable period, the person isliable to pay the amount of tax.[25] The effect of s 51B is that, if FEM was making supplies in the furtherance ofa taxable activity and representing that GST was charged on the supply, then FEM istreated as being registered for GST and is liable to pay the amount of GST beingcharged. As Mr King was the person operating FEM when it was making supplies andrepresenting that GST was charged on those supplies, he can be liable for evading orattempting to evade the payment of GST on those supplies under s 143B(2) of the TaxAdministration Act.[26] I therefore reject Mr King's submissions that the fact of his bankruptcy meansthat he cannot be liable for the charges brought against him. The charges concernevading or attempting to evade tax. The fact that Mr King was allegedly operatingFEM when he was prohibited from doing so is not relevant to whether he was evadingor attempting to evade the payment of GST. A GST liability arose because invoicesfor supplies were issued in FEM's name; those invoices included a GST component;and payment of that charged GST was received (into Mr King's personal bankaccount).[27] The questions of law posed by the appellant are not the appropriate ones forthe charges that have been brought. The relevant question of law is whether a bankruptcan be charged for evading or attempting to evade the payment of GST when thatbankrupt has operated a company that has charged and received GST on taxablesupplies. The answer to that question is "yes".Result[28] Leave to appeal on a question of law is granted. The relevant question is"whether a bankrupt can be charged for evading or attempting to evade the paymentof GST when that bankrupt has operated a company that has charged and receivedGST on taxable supplies". The answer to that question is "yes".Mallon J