GST and self-assessment

2005 amendments provide that GST is a self-assessed tax - like income tax it relies on taxpayers making the initial assessment of their own tax liability.

Sections 89D(2C), 89DA(1), 92B, 106(1D), 106(1E), 108A(1), 108A(3), 108B(3)(f) of the Tax Administration Act 1994 and sections 2(1), 16(3), 17(3), 19B(2B), 20A(1)(b), Part IV (repealed) and section 51B of the Goods and Services Tax Act 1985

Introduction

Amendments have been made to the Goods and Services Tax Act 1985 and the Tax Administration Act 1994 (TAA) to provide that GST is a self-assessed tax. GST, like income tax, relies on taxpayers making the initial assessment of their own tax liability. The amendments aligning the GST legislation with the practice of self-assessment follow the legislative approach used for income tax.

Background

Modern tax administration practices recognise that taxpayers have the best information about their own activities. As such, taxpayers are better placed than the Commissioner to assess their tax liabilities by making the appropriate calculations and furnishing their returns. Therefore both the GST and income tax systems rely on taxpayers making the initial assessment of their tax liability.

Self-assessment for GST was previously not fully provided for in the legislation. Legislating explicitly for self-assessment for GST now aligns the legislation with practice, thus allowing taxpayers' obligations to be provided for more clearly and directly.

Self-assessment for income tax was enacted in 2001 to apply from the 2002-03 income year, and the self-assessment amendments for GST follow the approach for income tax.

Although not involving significant policy change, the introduction of self-assessment into the GST legislation will add to and enhance other improvements being made to simplify tax administration. The GST self-assessment provisions also achieve a better interface between the GST Act and the TAA.

Application date

The amendments apply to GST taxable periods starting on or after 1 April 2005.

Key features

Part IV of the GST Act, relating to the assessment of GST, has been repealed. The main effect of former section 27 of the GST Act is achieved by new section 92B of the TAA. A taxpayer who is required to provide a return under the GST Act for a taxable period must make an assessment of the tax payable for the period.

The Commissioner will retain specific powers to amend a taxpayer's assessment under section 113 of the TAA or make an assessment under section 106 if a taxpayer fails to self-assess.

Consequential amendments have been made to the timebar provisions in section 108A for amending GST assessments and the timebar waiver provisions in section 108B of the TAA, reflecting the move to self-assessment. These changes are based on the model used in the income tax time bar provision in section 108.

A number of provisions in the GST Act have been repealed because their effect is replicated by existing provisions in the TAA. For example, the effect of section 29 of the GST Act (assessments deemed correct except in challenge proceedings) is replicated in section 109 of the TAA, so section 29 has been repealed.

Detailed analysis

Requiring taxpayers to make a GST assessment

Part IV of the GST Act, relating to the assessment of GST, has been repealed with its effect being achieved by existing or new provisions in Part VI (assessments) of the TAA. New section 92B in Part VI of the TAA requires a taxpayer (as defined in section 3 of the TAA) to self-assess for GST. In particular, subsection (1) states that a taxpayer who is required to provide a GST tax return for a GST return period must make an assessment of the amount of GST payable for the return period. The self-assessment provision also applies to any person required to provide a special return under section 17 of the GST Act.

The terms "GST return period" and "GST payable" in the TAA have the same meanings as the terms "taxable period" and "tax payable" in the GST Act.

Date of self-assessment

New section 92B(2) states that the assessment is made on the date on which the taxpayer's GST tax return is received at an office of the department.

In practice, this means that on the date of receipt by Inland Revenue of the taxpayer's return, the return is datestamped - electronically or manually - and it is this date that is entered into Inland Revenue's computer system. Once this date is entered into the system, a return acknowledgement form is generated and sent to the taxpayer. The taxpayer will therefore have a record of the date of receipt, and the date of self-assessment

Notice of self-assessment

New section 16(3) of the GST Act provides that a return filed for a taxable period must contain a notice of the assessment made under section 92B of the TAA. Similarly, new section 17(3) of the GST Act provides that a special return required to be provided under section 17(1) must contain a notice of the self-assessment.

Commissioner amendment of assessments

The Commissioner retains the power to amend any GST assessments, including those made by the taxpayer. The function of former section 27(2) of the GST Act is achieved by section 113 of the TAA. Section 113 allows the Commissioner to amend an assessment at any time, subject to new section 89N.

Persons treated as registered

The function of former section 27(5A) and (6) is now achieved by new section 51B of the GST Act. This section deems persons to be registered in certain situations.

Commissioner assessments

The Commissioner retains the power to make an initial assessment (default assessment) if the taxpayer fails to self-assess. Section 106 of the TAA has been amended to enable the Commissioner to make an assessment of the GST payable if a person does not provide a GST tax return (including returns required to be filed because the person is treated as being registered under 51B) or provides a return with which the Commissioner is not satisfied.
If the Commissioner, instead of the taxpayer, makes the initial assessment, the requirement for a taxpayer to self-assess does not apply.

Timebar for amending a GST assessment

Amendments have been made to sections 108A and 108B to reflect self-assessment of GST. The time bar provision in section 108A(1) has been simplified to provide that if a taxpayer provides a GST tax return for a GST return period and an assessment has been made, and four years have passed from the end of the GST return period in which the taxpayer provided the tax return, the Commissioner may not amend the assessment.

Disputing an assessment made by the Commissioner

If the Commissioner has made the initial assessment for the taxpayer, the taxpayer can dispute the assessment only after furnishing a GST return. This requirement is contained in new section 89D(2C).

Disputing a GST self-assessment

Section 89DA enables taxpayers to propose adjustments to their own assessments by issuing a notice of proposed adjustment. This provision has been amended to incorporate GST self-assessments.

Consequential amendments

  • An amendment to section 2(4) of the TAA ensures that Part VI (Assessments) of the TAA applies to GST assessments.
  • The effect of former section 27(3) and (5) is achieved by section 111 of the TAA. In particular, new section 111(8) continues the effect of former section 27(3)(b).
  • The effect of former section 28 of the GST Act is achieved by section 114 of the TAA. Section 114 provides that the validity of an assessment made by the Commissioner is not affected by failure to comply with the Inland Revenue Acts.
  • The effect of former sections 23(3) and 29 of the GST Act is achieved by section 109 of the TAA. Section 109 provides that except in challenge proceedings every disputable decision (which includes an assessment) and its particulars is taken to be correct.
  • The effect of former section 30 of the GST Act relating to evidence of returns and assessments is achieved by section 110 of the TAA.
  • In sections 2(1) and 20A(1)(b) of the GST Act, the reference to section 27(6) has been replaced with a reference to its successor provision new section 51B.