HOEBERECHTS v THE COMMISSIONER OF INLAND REVENUE [2023] NZHC 1

HOEBERECHTS v THE COMMISSIONER OF INLAND REVENUE [2023] NZHC 1 [5 January 2023]IN THE HIGH COURT OF NEW ZEALANDHAMILTON REGISTRYI TE KŌTI MATUA O AOTEAROAKIRIKIRIROA ROHECIV 2021-419-288[2023] NZHC 1UNDER The Income Tax Act 2007, the TaxAdministration Act 1994 and s 56(3) of theSenior Courts Act 2016IN THE MATTER OF An application for leave to appeal to theCourt of AppealBETWEEN VERONICA ANNE HOEBERECHTSApplicantAND THE COMMISSIONER OF INLANDREVENUERespondentOn the papersCounsel: The applicant in personK Naik-Leong for the respondentJudgment: 5 January 2023JUDGMENT OF CAMPBELL JThis judgment was delivered by me on 5 January 2023 at 3.00pm pursuant to Rule 11.5of the High Court RulesRegistrar/Deputy Registrar[1] The Taxation Review Authority (the Authority) dismissed a challenge by theapplicant, Ms Hoeberechts, to an income tax assessment by the respondent, theCommissioner of Inland Revenue (the Commissioner).1 Ms Hoeberechts filed anappeal from the Authority's decision. At the same time, she made an interlocutoryapplication for leave to appeal out of time (her understanding at that time being thather appeal was filed late).[2] In a judgment dated 31 August 2022, I declined Ms Hoeberechts' applicationfor leave to appeal out of time.2[3] Ms Hoeberechts wishes to appeal from my decision to the Court of Appeal.Because my decision was on an interlocutory application, she requires leave to appealunder s 56(3) of the Senior Courts Act 2016. Ms Hoeberechts applies for leave. Shesays I should grant leave for one or both of two reasons. First, she says that, contraryto her earlier understanding, her appeal from the Authority's decision was not late, sothat she did not require leave to appeal out of time. Secondly, she says her proposedappeal from my decision meets the test for granting leave under s 56(3).[4] The Commissioner opposes the grant of leave to appeal.[5] The parties were content for the application to be determined on the papers.[6] Two issues arise on the application:(a) Did Ms Hoeberechts require leave to appeal from the Authority'sdecision out of time?(b) Should leave to appeal from my decision be granted?1 Case 2/2021 [2021] NZTRA 3, (2021) 30 NZTC 6-001.2 Hoeberechts v Commissioner of Inland Revenue [2022] NZHC 2200.Did Ms Hoeberechts require leave to appeal from the Authority's decision out oftime?Background[7] The Authority's decision was dated 1 October 2021. Any appeal had to bebrought within 20 working days.3 To bring the appeal, Ms Hoeberechts had to file anotice of appeal and serve it on the Commissioner.4[8] Twenty working days from 1 October 2021 was 1 November 2021.Ms Hoeberechts did not file or serve a notice of appeal by that date.[9] At 5.40 pm on 1 November 2021, Ms Hoeberechts informed the Commissionerby email that she intended to appeal the Authority's decision. Counsel for theCommissioner responded to Ms Hoeberechts the next day, telling her that she wouldhave to apply for special leave to appeal out of time.[10] Ms Hoeberechts' notice of appeal and a letter seeking special leave to appealout of time were filed by Ms Hoeberechts on 8 November 2021.5 On 11 November2011, Ms Hoeberechts provided the Commissioner with a copy of her notice of appeal(but not of her letter seeking leave). Ms Hoeberechts served a complete set of herdocuments on the Commissioner on 25 November 2021.[11] The Commissioner opposed Ms Hoeberechts' application for leave to appealout of time.[12] Ms Hoeberechts' application was heard before me on 21 June 2022. Bothparties filed detailed written submissions in advance of the hearing. Those weresupplemented by oral submissions at the hearing. All these submissions assumed thatMs Hoeberechts was late in filing her notice of appeal and therefore required leave toappeal out of time. My judgment proceeded on the same basis.63 High Court Rules 2016, r 20.4(2)(b).4 Rule 20.6(1).5 The documents were not accepted for filing until 10 November 2021, because Ms Hoeberechtshad not paid the filing fee.6 Hoeberechts v Commissioner of Inland Revenue [2022] NZHC 2200 at [11]–[14].Ms Hoeberechts now says her appeal was in time[13] Ms Hoeberechts filed and served an application for leave to appeal from mydecision on 29 September 2022. The Commissioner filed a notice of opposition dated13 October 2022.[14] Ms Hoeberechts then, on 20 October 2022, filed a response to theCommissioner's notice of opposition. In her response, Ms Hoeberechts for the firsttime submitted that she had brought her appeal from the Authority's decision in time.[15] Ms Hoeberechts' submission is based on r 1.18 of the High Court Rules 2016:1.18 When time expires when court registry is closedWhen the time for doing any act at a registry of the court expires on a day onwhich that registry is closed, so that that act cannot be done on that day, theact is in time if done on the next day on which that registry is open.[16] Ms Hoeberechts submits that the Hamilton High Court registry was closed, asa result of COVID-19 restrictions, from at least 1 November 2021 until 9 am on 18November 2021. Therefore, Ms Hoeberechts submits, her notice of appeal was notdue to be filed until 18 November 2021 and was not filed late.Was Ms Hoeberechts' appeal brought in time?[17] To bring an appeal from the Authority's decision, Ms Hoeberechts had to filea notice of appeal and serve it on the Commissioner.7 Ms Hoeberechts had to do boththese things by 1 November 2021, subject to any legislative provision extending thetime for doing so.[18] Rule 1.18 deals with the time for doing an act at a registry. That includes filinga document. But r 1.18 does not deal with the time for serving documents.[19] The short answer to Ms Hoeberechts' submission is that, even if the HamiltonHigh Court registry had been closed on the relevant dates, this would not have had anyeffect on the time by which she had to serve her notice of appeal on the Commissioner.7 Rule 20.6(1).She did not serve any notice of appeal on the Commissioner by 1 November 2021.Her appeal therefore was not brought in time. She therefore required leave to appealfrom the Authority's decision out of time.[20] Further, I do not accept Ms Hoeberechts' submission that r 1.18 was engagedso that her notice of appeal was not due to be filed until 18 November 2021. From atleast 1 November 2021 to 9 am on 18 November 2021, the Waikato region was subjectto COVID-19 Alert Level 3. This meant that the public counter at the Hamilton HighCourt registry was closed to the public. However, cl 9 of the Protocol for Alert Level3 (issued by the Chief High Court Judge on 28 February 2021) provided that"[d]ocuments may be filed electronically or by post or courier". Rule 1.18 is engagedonly where, as a result of a registry's closure, a particular act cannot be done at thatregistry. Here, even if the Hamilton registry was "closed" from 1 to 18 November2021 (a point I do not need to decide), that closure did not prevent Ms Hoeberechtsfrom filing her notice of appeal on any of those days. This is evident fromMs Hoeberechts having electronically filed her notice of appeal on 8 November 2021.[21] For both these reasons, I conclude that Ms Hoeberechts did require leave toappeal from the Authority's decision out of time.Should leave to appeal from my decision be granted?Principles governing leave to appeal interlocutory decisions[22] In Ngai Te Hapu Inc v Bay of Plenty Regional Council, the Court of Appeal,though refraining from laying down definitive principles, said leave to appeal shouldbe granted under s 56(3) only where:8(a) There is an arguable error of law or fact; and(b) The significance or implications of that arguable error, either for theparticular case or for the applicant or as a matter of precedent, warrantsthe further delay the appeal process will involve.8 Ngai Te Hapu Inc v Bay of Plenty Regional Council [2018] NZCA 291 at [17]; see also Tomar vTomar [2021] NZCA 419 at [7].[23] In Tomar v Tomar, the Court of Appeal referred with approval to theconsiderations that Fitzgerald J, in Finewood Upholstery Ltd v Vaughan, hadrecognised as relevant on an application for leave to appeal under s 56(3). The Courtsaid those considerations were:9(a) A high threshold exists.(b) The applicant must identify an arguable error of law or fact.(c) The alleged error should be of general or public importance warrantingdetermination or otherwise of sufficient importance to the applicant tooutweigh the lack of general or precedential value.(d) The circumstances must warrant incurring further delay.(e) The ultimate question is whether the interests of justice are served bygranting leave.[24] Other authorities have, correctly in my respectful view, said that the proposedappeal must be of sufficient significance to warrant the delay and cost of the appeal.10[25] In summary, Ms Hoeberechts must satisfy me that:(a) There is an arguable error of law or fact; and(b) The alleged error is of sufficient importance (either generally or toMs Hoeberechts) to warrant the cost and delay of the appeal.[26] Before addressing these matters, I will outline Ms Hoeberechts' dispute withthe Commissioner, the Authority's decision, and my earlier judgment on herapplication for leave to appeal the Authority's decision out of time.9 Tomar v Tomar [2021] NZCA 419 at [6], referring to Finewood Upholstery Ltd v Vaughan [2017]NZHC 1679 at [9] and [14].10 Li v Chief Executive, Ministry of Business, Innovation and Employment (No 2) [2018] NZHC 1171at [21]–[22]; Yu v Bradley [2018] NZHC 2312 at [11].Ms Hoeberechts' dispute with the Commissioner and the Authority's decision[27] Ms Hoeberechts received a lump sum payment of $188,386.95 from theAccident Compensation Corporation (ACC) in November 2017. The payment was inrespect of an injury that Ms Hoeberechts suffered in 2014. The payment resulted froma decision of the District Court in 2017, overturning ACC's view of Ms Hoeberechts'entitlement. The payment was therefore backdated compensation, being in respect ofshortfalls in compensation ACC should have paid to Ms Hoeberechts over the periodApril 2014 to September 2017.[28] ACC allocated the backdated payment in the following way:(a) ACC paid $38,386.65 to the Ministry of Social Development in respectof taxable benefit payments that Ms Hoeberechts had received fromthat Ministry from April 2014 to September 2017.(b) ACC treated the balance of the payment (roughly $150,000) as a PAYEpayment, paying the tax due to Inland Revenue and the remainder toMs Hoeberechts.[29] Ms Hoeberechts' proposed appeal to this Court was in respect of the taxtreatment of the $150,000 payment. The Commissioner assessed the $150,000 astaxable on a cash basis for the tax year ended 31 March 2018 — the tax year in whichMs Hoeberechts received the payment. This meant that Ms Hoeberechts had a veryhigh taxable income in the year ended 31 March 2018, and much of that income wastaxed at the highest marginal tax rate.[30] Ms Hoeberechts challenged that assessment. Before the Authority, her primaryargument was that, rather than taxing the $150,000 payment in the year of receipt, itshould have been taxed on an accrual basis — that is, spread across the tax yearsending 31 March 2015 to 2018. On that position, none of her income would haveattracted the highest marginal tax rate. Ms Hoeberechts' secondary argument was thatthe Commissioner had a discretion to apply the lower tax rates that would have appliedhad the backdated payment been allocated to the tax years over which her entitlementto ACC compensation had accrued. Ms Hoeberechts also argued that conduct by theCommissioner was reprehensible.[31] The Authority heard Ms Hoeberechts' challenge on 28 September 2021. In adecision dated 1 October 2021, the Authority held that taxing backdated weeklycompensation payments in the year of receipt was long established and a deliberatepolicy setting in the Income Tax Act 2007, and that the Commissioner had no generaldiscretionary power to exempt taxpayers from tax laws.11 The Authority also rejectedMs Hoeberechts' criticism of the Commissioner and her officials.12 The Authoritytherefore rejected Ms Hoeberechts' challenge to the Commissioner's assessment.My earlier judgment on Ms Hoeberechts' application for leave to appeal theAuthority's decision out of time[32] In my earlier judgment, I noted13 that the principles governing the exercise ofa discretion to grant or deny an extension of time to appeal had been authoritativelysummarised by the Supreme Court in Almond v Read.14 The ultimate question waswhat the interests of justice require in the particular circumstances of the case.Relevant factors included the length of the delay, the reasons for the delay, the conductof the parties (particularly of the applicant for leave), any prejudice to the respondent,the significance of the issues raised by the proposed appeal (both to the parties andmore generally) and the merits of the proposed appeal.15[33] I also recorded16 that the Supreme Court said that a refusal of an extension oftime based substantially on the lack of merit of a proposed appeal should be made onlywhere the appeal is "clearly hopeless". I said that the Supreme Court said that oneexample of a clearly hopeless appeal would be where, on facts to which there is nochallenge, the appeal "could not possibly succeed".1711 Case 2/2021 [2021] NZTRA 3, (2021) 30 NZTC 6-001 at [28]–[31].12 Hoeberechts v Commissioner of Inland Revenue [2022] NZHC 2200 at [32]–[36].13 At [16].14 Almond v Read [2017] NZSC 80, [2017] 1 NZLR 801.15 At [38]–[39].16 At [17].17 At [39(c)].[34] I noted that Ms Hoeberechts' delay in filing the notice of appeal was short, thather delay was attributable in part to difficulties that she experienced as a result ofrestrictions that were then in place to control COVID-19, and that the Commissionerhad not been prejudiced by the delay. I said these factors all favoured extending timeto appeal.18[35] I therefore said that the only basis on which I could refuse an extension of timewould be that the proposed appeal was clearly hopeless, in the sense that, on facts towhich there was no challenge, the appeal could not possibly succeed. I observed thatwas the principal basis upon which the Commissioner opposed leave.19[36] I then found that neither of the two grounds on which Ms Hoeberechts wishedto appeal the Authority's decision (the "tax treatment ground" and the "discretionaryground") could possibly succeed. As to the former, I found:20(a) A long line of appellate cases holds that taxpayers who are not in tradeare appropriately taxed on a cash basis. It is this principle that underliesthe decisions of the Authority, and of the High Court in Hollis vCommissioner of Inland Revenue,21 that backdated payments of ACCcompensation (and other backdated payments) are derived in the yearof receipt.(b) Although some of those decisions dealt with different legislation, thereis no material difference between that earlier legislation and the IncomeTax Act 2007. Section BD 3(3) of that Act requires regard to be had tocase law that requires some people to recognise income on an accrualbasis and others on a cash basis. On Ms Hoeberechts' proposed appealthis Court (and any appellate court) would be bound to apply theprinciple that taxpayers who are not in trade are appropriately taxed ona cash basis.18 Hoeberechts v Commissioner of Inland Revenue [2022] NZHC 2200 at [18]–[20].19 At [20].20 At [25]–[44].21 Hollis v Commissioner of Inland Revenue (2010) 24 NZTC 23,967 (HC) at [28].(c) Ms Hoeberechts was not in trade at any relevant time.(d) Accordingly, on the unchallenged facts, Ms Hoeberechts could notpossibly succeed on the tax treatment ground.[37] As to the latter ground, Ms Hoeberechts submitted that the Commissioner haddiscretionary powers to alter the usual application of tax law. I found:22(a) The Court of Appeal had repeatedly held that liability under income taxlegislation is imposed by statute, not by the Commissioner.23 Itfollowed that the Commissioner has no discretion to exercise whenassessing the amount of a taxpayer's liability24 — and it was theassessment of Ms Hoeberechts' tax liability that would be in issue inher proposed appeal.25(b) Accordingly, Ms Hoeberechts could not possibly succeed on thediscretionary ground.[38] For those reasons, I found that Ms Hoeberechts' proposed appeal could notpossibly succeed, and therefore declined to extend time for her to appeal.Is there an arguable error of fact or law?[39] In the documents that Ms Hoeberechts has filed in support of her applicationfor leave to appeal from my decision, she raises several alleged errors of fact or law.[40] First, Ms Hoeberechts refers in detail to the ways in which COVID-19restrictions prevented her from filing her notice of appeal on time. She suggests thatI took insufficient account of those restrictions. I do not accept that there was any22 Hoeberechts v Commissioner of Inland Revenue [2022] NZHC 2200 at [45]–[47].23 Brierley Investments Ltd v Bouzaid [1993] 3 NZLR 655 (CA) at 669; Commissioner of InlandRevenue v Canterbury Frozen Meat Co Ltd [1994] 2 NZLR 681 (CA) at 689; Commissioner ofInland Revenue v Michael Hill Finance (NZ) Ltd [2016] NZCA 276, [2016] 3 NZLR 303 (CA) at[80].24 Commissioner of Inland Revenue v Michael Hill Finance (NZ) Ltd [2016] NZCA 276, [2016] 3NZLR 303 (CA) at [80].25 Not, for example, the question whether the Commissioner should exercise her discretion to writeoff tax under s 177C of the Tax Administration Act 1994.arguable error on my part in this respect. I found that Ms Hoeberechts' delay in filingher notice of appeal was caused in part by COVID-19 restrictions and that thisfavoured extending time for her to appeal.26[41] Secondly, Ms Hoeberechts submits that I should have ruled only on the reasonsfor her late filing of her notice of appeal, and not engaged in the merits of her appeal.She submits that, in engaging with the merits, I denied her the right to be heard.[42] I do not accept that I was arguably in error in engaging in the merits. TheSupreme Court's decision in Almond v Read makes it clear that the court may engagewith the merits, and that an extension of time can be refused where, on facts to whichthere is no challenge, the appeal could not possibly succeed.[43] Nor do I accept that Ms Hoeberechts was arguably denied the right to be heard.The Commissioner's notice of opposition to Ms Hoeberechts' application for anextension of time raised the lack of merit in the proposed appeal. Ms Hoeberechtsresponded to that point in the written submissions that she filed in advance of thehearing. At the hearing, I said to Ms Hoeberechts that the Commissioner appeared tobe putting most store in the argument about the merits of the proposed appeal. Ispecifically asked Ms Hoeberechts to tell me what she had to say about that.[44] Thirdly, Ms Hoeberechts submits that I erred in finding that neither of herproposed grounds of appeal could possibly succeed.[45] As to the tax treatment ground, Ms Hoeberechts' essential arguments are thatI erred in the following ways:(a) She says that s BD 3(3) of the Income Tax Act gives a taxpayer theright to choose to recognise income on either an accrual basis or a cashbasis. I do not accept that this is arguable. The provision says that indetermining the time of derivation of an amount of income, regard mustbe had to case law which requires some people to recognise income onan accrual basis and requires some people to recognise income on a26 At [18] and [20].cash basis. A taxpayer does not have a right to choose between the twobases.(b) Ms Hoeberechts says that the long line of appellate cases that I reliedon (holding that taxpayers who are not in trade are appropriately taxedon a cash basis) are irrelevant, because some are from otherjurisdictions, some are dated, and none concern the tax treatment ofbackdated payments under the Accident Compensation scheme. Thisis not an arguable proposition. The appellate cases are part of the caselaw referred to in s BD 3(3). Regard therefore must be had to them indetermining the time of derivation of the income in issue here.[46] As to the discretionary ground, Ms Hoeberechts essentially repeats thesubmissions she made to me at the earlier hearing. I have already found this groundto be untenable, because the Court of Appeal has repeatedly held that liability underincome tax legislation is imposed by statute, not by the Commissioner.27Ms Hoeberechts' repetition of her earlier arguments has not persuaded me that I wasarguably in error in following those Court of Appeal cases.[47] For all these reasons, I find that Ms Hoeberechts has not shown that there is anarguable error of law or fact in my earlier decision.Is the alleged error of sufficient importance (either generally or to Ms Hoeberechts)to warrant the cost and delay of the appeal?[48] I accept that the alleged error in my conclusion on the tax treatment ground isof significant importance both to Ms Hoeberechts and to others who have hadbackdated accident compensation payments taxed at a higher rate than would havebeen the case if the payments had been made at the correct time.[49] But, as I said in my earlier judgment, I have no doubt that that treatment is inaccordance with the Income Tax Act. Any change in that treatment is a matter for27 At [46].Parliament. Given my finding that there is no arguable error in my earlier decision, Imust decline Ms Hoeberechts' application for leave to appeal.Result[50] Ms Hoeberechts' application for leave to appeal is declined.[51] The Commissioner is entitled to costs on the application.______________________Campbell J