The decision by the Commissioner of Inland Revenue (the "Commissioner") to refuse to grant a taxpayer an extension to object to tax assessments has been upheld by the Court of Appeal. The decision confirms actual notice is deemed by reason of notices sent in the ordinary course of post to the last known address of the taxpayer and evidence to the contrary will need to be demonstrated before the Commissioner's refusal to extend time will be overturned by the Courts.
In 2010, the IRD sent notices of assessment to Kao, Lee & Yip ("KLY"), a firm of solicitors the taxpayer had previously designated to receive correspondence from the IRD. The notices informed the taxpayer of 2 profits tax assessments as well as 23 property tax assessments made by the Commissioner. The taxpayer, however, claimed he had not received the notices and only learned about them several months later, after the Commissioner had issued proceedings to recover the outstanding tax.
By way of judicial review, the taxpayer applied to the Court of First Instance ("CFI") to quash the Commissioner’s decision not to consider his objection to the assessment and the decision not to grant an extension of time to lodge his objection.
Service of Notices and Extensions of Time
Under section 58(2) of the Inland Revenue Ordinance (the "Ordinance"), notices given by virtue of the IRO may be served on a person either personally or by being delivered at, or sent by post to, his last known postal address.
Section 58(3) provides that, any notice sent by post shall be deemed served on the taxpayer on the day after it would have been received in the ordinary course by post, unless the contrary is shown. In proving service by post it is sufficient to prove the letter containing the notice was duly addressed and posted: section 58(4) of the Ordinance.
Under section 64(1) of the Ordinance, a taxpayer may object to the assessment one month from the date of the assessment. However, the Commissioner may extend the time limit if satisfied that there is some reasonable cause which prevented the taxpayer from giving such notice within such period (such as illness or absence from Hong Kong).
In considering the taxpayer’s application, the CFI held that while the Commissioner must establish actual notice of the assessment, she can do so by relying on the presumption of actual notice in section 58(3) of the Ordinance. Having served on the last known postal address of the taxpayer, the CFI held the Commissioner was not obliged to serve the assessments on any other address. The CFI was of the view that the lack of actual knowledge of an assessment may provide the basis for a taxpayer’s application for an extension of time but no automatic right of extension arises by a taxpayer simply asserting that he or she did not have actual knowledge.
The CFI held the Commissioner had failed to consider the taxpayer's lack of actual knowledge of the notices of assessment, a fact that the Commissioner ought to attach significant weight to regardless of whether anything had been received by KLY, and thus the Commissioner's refusal to grant an extension of time to raise an objection to the assessment was unreasonable.
The Commissioner appealed the CFI’s decision.
The Court of Appeal overturned the CFI’s decision.
The Court of Appeal rejected the taxpayer's argument that the 'giving' of notice implies 'receipt' by the taxpayer, in the sense that he must have actual knowledge of the notice. Once the document was properly served under section 58(2) of the Ordinance, actual notice was treated to have been given to the taxpayer.
The Court of Appeal held that section 58(3) of the Ordinance merely creates a rebuttable presumption as to when the notice sent by post is deemed to have been served. Even if the notice is not received by that presumed time or at all, it is deemed to have been served. In any event, time starts to run for the purpose of objection within one month after the date of the notice of assessment (on the basis that it has been given by way of proper service) and not from the date of service of the notice of assessment.
The Court of Appeal rejected the CFI’s finding the Commissioner did not consider the evidence on service. The Court of Appeal considered the Commissioner had formed the view it was too much of a co-incidence that all 25 assessments (which were sent at different times) would not have reached the taxpayer. It was insufficient for the taxpayer to allege he had not received the assessments in circumstances where there was no evidence to rebut KLY’s assertion they had forwarded the correspondence to the taxpayer’s agents in accordance with past practice. The Court of Appeal concluded there were no proper grounds to challenge the correctness of the Commissioner's refusal to extend time.
A Cautionary Tale
The decision by the Court of Appeal serves as a reminder that taxpayers must take a proactive role in ensuring tax assessments and other correspondence from the IRD are received, and attended to in a timely manner in light of the fact time starts to run from the date of the notice of the assessment and the deeming provisions in the Ordinance as regards service.