2018/73
Issued
2018

Taxation (new due date for new and increased assessments) commencement order 2018

The Taxation (New Due Date for New and Increased Assessments) Commencement Order 2018 came into force on the 14th of May 2018. This commencement order sets the date that section 142AB of the Tax Administration Act 1994 comes into force for goods and services tax as the 18th of June 2018.

The Taxation (New Due Date for New and Increased Assessments) Commencement Order 2018 came into force on the 14th of May 2018.  This commencement order sets the date that section 142AB of the Tax Administration Act 1994 comes into force for goods and services tax as the 18th of June 2018.

This new section standardises the due dates for default assessments which are issued by the Commissioner in the absence of a return.

Application date

Section 142AB will come into force for goods and services tax on 18 June 2018.

Background

Section 142A of the Tax Administration Act 1994 sets different due dates for payment of an Electronic Default Assessment (EDA) and Non-electronic Default Assessment (NDA). There are also different treatments for any tax payable from a subsequent amendment to that default assessment. Section 142AB modifies that rule to align the due date for payment of tax for default assessments, whether these are made manually or electronically.

The amended rules will only apply when the default assessment relates to a tax type that has been migrated to Inland Revenue’s new START technology system, and when incremental penalties do not apply to the particular tax type. Consequently, the commencement order only brings section 142AB into force for goods and services tax, which is the only tax type which currently meets those criteria.

The previous treatment

Section 142A sets different due dates for payment of an EDA and NDA.

For an EDA:

  • The amount payable from the default assessment is due on the original due date for the tax type and period. This means that if the EDA is made after the original due date, as is always the case for GST, late payment penalties will be immediately applied, back-dated to the original due date.
  • When the EDA is amended, a new due date will be set that is at least 30 days following the notice advising the taxpayer of the new amount to pay. Therefore, any late payment penalties applied to the EDA will be reversed, and the taxpayer will not be penalised further unless they do not pay any amount due by the new due date.
Example  

Horribear Ltd the maker of zombie teddy bears is due to file its GST return for the period ending 31 March 2017 on 28 April 2017. Because of an increasing demand for the new Demon Teddy range, Horribear forgets to file the return in its attempts to produce more Demon bears.

Because the return is unfiled, the Inland Revenue computer system automatically applies an EDA of $1,000 on 14 May 2017. The due date for the EDA is 28 April 2017, so immediately retrospective penalties are applied on the amount of the EDA, with effect from the day after the original due date.

Horribear then files the return on 30 May 2017, and the information from that return is used to replace the EDA with a new assessment of $1,500 to pay.

The taxpayer is given at least 30 days – until 30 June 2017, to pay the $1,500 assessment. There are no back-dated penalties unless they do not pay by the new due date.

For an NDA:

  • The amount payable from the default assessment is due at least 30 days from the notice of assessment.
  • If the assessment is subsequently amended, then the taxpayer is only given a new due date for any amount payable that is greater than the amount previously payable from the NDA. This new due date will also be at least 30 days after the notice advising the taxpayer of the additional tax to pay.
Example  

Dream Liner Ltd, a manufacturer of scented industrial bin liners, is due to file its GST return for the period ending 31 March 2017 on 28 April 2017.

An Inland Revenue investigator decides to make a Commissioner’s assessment of $1,000 on 14 May 2017 due to Dream Liner not having filed a number of returns, including this one. Dream Liner is given a due date to pay the $1,000 on 15 June 2017.

The taxpayer then files its return, and the information from the return is accepted as an amendment to the NDA on 30 June 2017, with the resulting assessment being $1,500 to pay.

The $1,000 from the NDA is still due as of 15 June 2017, and the taxpayer is given a new due date of 30 July 2017 to pay the additional $500 of the increased assessment.

 

The new treatment

Section 142AB will apply to set a new due date for certain assessments. Section 142AB will not apply to assessments made in the absence of a return and to which section 106(1) applies. Section 106 deals with the issue of default assessments, both electronic and non-electronic.

Section 142A applies to tax types that proposed section 142AB does not apply to. It also applies to assessments other than EDAs made in the absence of a return and to which section 106(2) applies, which relates to EDAs only. Section 142AB removes this distinction entirely so that no new due date is set for any default assessment, manual or automatic.

In addition, proposed section 142AB does not set a new due date for an increased assessment from a default assessment. This will mean that any subsequent amendments to a default assessment will be due at the original due date. This change reflects the fact that no return was originally filed and removes a benefit to those who do not file compared with those who do file returns and pay tax on time.

Example  

Using the facts in the Dream Liner Ltd example above, Dream Liner is due to file its GST return for the period ending 31 March 2019 on 28 April 2019.

An Inland Revenue investigator decides to make a Commissioner’s assessment of $1,000 on 14 May 2019 due to Dream Liner not having filed a number of returns. Although section 142AB applies to this situation it will not apply to give this default assessment a new due date and the tax will be due on the original due date of 28 April 2019.

The taxpayer then files its return, and the information from the return is accepted as an amendment to the NDA on 30 June 2019, with the resulting assessment being $1,500 to pay.

Again, section 142AB will not apply as the reassessment relates to the reassessment of a default assessment and thus the $1,500 from the reassessment is still due on the original due date for the tax, 28 April 2019.

Example  

Carrying on from the Horribear Ltd example above, in the 2019 year Horribear has a GST review performed by Inland Revenue on its GST return for the period ended 31 March 2019.

Inland Revenue discovers that Horribear has understated its GST output tax for the period by $500. The investigator issues a reassessment for the period to reflect the increase in GST payable.

Section 142AB will apply to the reassessment as it is not a reassessment of a default assessment and therefore a new due date can be set for the payment of the extra GST. The due date for the tax is set for at least 30 days after the reassessment.