Here are some suggested entries you might make in a Notice of proposed adjustment (NOPA) - IR770 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 as a sole trader. Business income is received from many small value transactions with customers, most of which are valued under $50. You have not filed income tax returns for the previous 2 income years.
We investigate and find that your business has generated significant income.
We issue assessments of tax in the absence of your income tax returns and include all but a very small number of deposits into the business bank account as income.
You now wish to dispute the assessments and argue that some of the deposits in the business bank account that have been treated as income are not income.
Generally, you have 4 months to file your NOPA from the date of your self-assessment. You are required by law to provide your income tax returns for the relevant tax years before or at the time you submit your NOPA.
Suggested entries in the NOPA
What is the change you want?
For a change to an assessment
Form number of the return you filed
You’ll need to enter the form number of the return you filed. For example, IR3
Period the return covered:
You’ll need to enter the period the return covered. For example, 01/04/2021 to 31/03/2022.
What is the amount of the change you want made to the assessment?
You’ll need to enter the amount of the change you want made to the assessment we issued. For example, if you are claiming that we incorrectly included the sales of personal items in your taxable income, you might say, 'I want $4,610.50 excluded from my taxable income.'
What facts support the change you want?
Describe the facts and circumstances that support your proposed change. Include any important facts you think we may not know. Relevant facts might include:
- The nature of the income typically earned by your business. For example, you make many small value transactions.
- The sources of income derived by your business. For example, over 95% of sales are made in the shop but you also sell some stock on Trade Me.
- The circumstances which led to the dispute. For example, you sold personal items through the business Trade Me account.
- A description of any subsequent events that might be relevant. For example, “I have now been through all the Trade Me details and identified the auctions where personal items were sold. I have compiled a schedule of dates, item descriptions and amounts. The total amount is $4,610.50 for 5 items.”
- The reason why your business account was used and not your private account. For example, 'I have everything set up in Trade Me for the business and it is very convenient to use the business account'.
Why do you think your proposed change is correct?
Explain why you think your proposed change 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. For example, you might state:
The amounts from the sale of private items deposited into the business bank account are not business income under section CB 1 because:
- The private items were not purchased by the business in the first instance..
- The sale of personal items does not generate business income.
- Even though the items were sold using the business Trade Me account, the items sold were private and the amounts received should not be subject to income tax.
- The schedule provided with this NOPA provides details of the private transactions.
- In particular, the extra detail now provided (ie, the item descriptions) should clarify that these auctions were not for the sale of business stock.
List the documents you’ve attached
In tax disputes you have the responsibility to prove the assessment is 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:
- The schedule of private Trade Me auctions including the dates, item descriptions and amounts.
- Receipts for the initial purchase of the items.
- Bank records showing information about the deposits.
- Correspondence from the purchasers of the items.
- Evidence of the private use of the items.