Here are some suggested entries you might make in a Notice of response (NOR) - IR771 form for this type of dispute. These are a guide only and if your circumstances are similar to the scenario, you will need to provide specific evidence to support your view.
You run a business. The business has four vehicles and 10 employees. Your tax returns are all filed on time. We have investigated your business and identified what we consider to be unexplained cash deposits into your personal bank account.
We send you a Notice of proposed adjustment (NOPA) proposing that all the 'unexplained amounts' deposited to your personal bank account be treated as income.
You now want to issue a NOR disputing our NOPA.
Generally, you have two months to file your NOR from the date that our NOPA is issued.
Suggested entries in the NOR
What is the change you want?
Describe the change you want to any amounts on our NOPA. For example, if our NOPA proposes an increase to your income, you might say, 'I agree that $15,000 of the deposits is income but the balance of the deposits are loans from my parents'. Alternatively, if you think the amount you provided on your income tax return was correct then you can just refer to your return (eg 'Refer to income tax return for the year ended 31/03/2022').
What facts support the change you want?
Describe the facts and circumstances that support your view that one or more of the proposed changes in our NOPA are wrong. Include any important facts you think we’re missing. If you disagree with our view of the facts then explain how we’re wrong.
If the facts you’re relying on have already been stated in our NOPA, you can say something like 'I am relying on the facts set out in Inland Revenue’s NOPA'. If you have more facts you would like to add you could also say '…with the addition of the following facts…' and then add the additional facts. Relevant facts might include:
- Your explanation of where the money came from.
- The circumstances that led you to borrow money from your parents. For example, you might state that you completed a big job for a company that is now in liquidation and there is little chance of getting paid. This has resulted in a large loss and a cash shortfall for the business.
- The reason why you deposited the money you borrowed from your parents into your personal bank account. For example, 'I thought it would be easier to keep track of it that way'.
Why do you think your view is correct?
Explain why you think your view is correct. You'll need to provide details of the law you are relying on to support your view. If you can’t do this, then you’ll need to provide enough detail so we can identify any relevant legislative provisions for you. You’ll also need to explain how the law applies to the facts. If you disagree with our view of the law then explain how we’re wrong.
An example of law is 'a cash loan in these circumstances is not a business transaction'. Some or all of the law may have already been included in our NOPA. If so, you can say something like 'I am relying on the law set out in Inland Revenue’s NOPA with the addition of …'. Then you might also say:
I borrowed the cash from my parents. The amounts are loans that I have to repay. The attached letter from my parents shows the date, amount, term, interest rate and expected repayment for each of the loans. The loan amounts are not income that was earned by the business. The letter from my parents and the copies of my parent’s bank statements indicate the nature of the transaction and where the money came from.
List the documents you’ve attached
In tax disputes you have the responsibility to prove the changes proposed in our NOPA are wrong. Attach copies of documents you’re aware of that are relevant to the issues you’ve raised. List the documents you’ve attached. Documents that might be helpful include:
- A letter from (or contract with) your parents setting out the details of the loan (ie, date, amount, term, interest rate, repayments).
- A copy of the Liquidator’s report for your client company.
- Bank statements and details from your parents showing the source of the cash.