GST returns - correcting minor errors (WITHDRAWN)

Taxpayers wanting to correct errors made in GST returns should now refer to QB 09/04 and also to SPS 07/03: Requests to amend assessments

Introduction

This standard practice statement (SPS) states the Commissioner's operational policy to allowing minor GST errors to be corrected by registered persons in subsequent GST returns. It replaces the item in Tax Information Bulletin 4.7 issued March 1993.

The purpose of the SPS is to provide a pragmatic solution for correcting GST return errors, consistent with promoting compliance and minimising compliance costs.

The amended SPS is effective from 1 June 1998 and applies to adjustments made on or after this date, irrespective of the return period when the error occured.

Background

The Institute of Chartered Accountants of New Zealand (ICANZ) asked the Inland Revenue Department (IRD) to revise the tolerance that had existed since 1993. The request from ICANZ was timely, as the standard practice review also looked at the impact of recent reforms such as the Compliance and Penalties regime and Disputes Resolution process.

The previous standard practice published in Tax Information Bulletin volume 4 number 7 basically allowed a one-off correcting adjustment in the next available return, if correcting the error(s) will result in less than $50 of tax to pay.

Revised Operational Policy

The revised standard practice has regard to the amount of the adjustment on the size of a registered person's taxable activity i.e. adjustment compared to annual turnover. IRD has used the $250,000 statutory threshold for allowing registered persons to file six monthly returns (two month returns can be $0 to $24 million) as the distinction between small and large registered persons. Further, the $250,000 legislative threshold is applied to provide a tiered approach to what adjustments are permitted to be made by registered persons with a small or large annual turnover, without having to adhere to the formal disputes resolution process.

Registered persons may make the following error adjustments in a later return:

Up to $200 GST, for businesses with an annual turnover up to $250,000; and

Up to $500 GST, for registered persons over $250,000 annual turnover.

Adjustments can be made without the need to apply the formal disputes resolution process. Registered persons correcting GST return errors are required to keep the following details as part of their return working papers, to be available to IRD on request:

• Return period error occurred
• GST amount involved
• Nature of error
• Return period correction made

Excepted situations

Situations where registered persons have on a number of occasions made adjustments to a number of return periods, or several like adjustments in varying periods, may fall outside this concession and may be considered under the compliance and penalties provisions. Repetative instances of error corrections will be reviewed by IRD when identified via review of records, and may be considered under the compliance and penalties provisions for lack of reasonable care, or more serious penalties where considered appropriate.

General Discussion

GST legislation

The GST Act 1985 specifies how Registered Persons are to calculate their GST liability to be paid by due date for payment. The GST Act provides no tolerance for errors and how they may be corrected.

Disputes Resolution Process

The disputes resolution process requires registered persons to issue a Notice of Proposed Adjustment (NOPA) (as per Section 89D(4) of the Tax Administration Act 1994) to the Commissioner, serving notice of their proposal to seek an assessment to make adjustments to GST returns to correct an error(s). For a NOPA to have effect, the notice must be sent to the Commissioner within the response period (2 months of the original self calculated assessment) as per section 89D(5). Where NOPAs are received in time, the IRD will consider the proposed adjustments and if agreed, alter the assessment.

Where the response period has expired, the disputes resolution process does not provide a simple mechanism for tax practitioners to resolve errors other than Commissioner's discretion under section 113 of the TAA 1994. For the Commissioner to exercise discretion, it would be incumbent on tax practitioners to advise the Department of cases they seek to rectify and the reasons for filing amended GST returns. Such a process is cumbersome for the Department and presents additional compliance costs for registered persons.

In pursuit of a pragmatic solution, IRD was required to consider the Care and Management provisions.

Care and Management

Section 6A(3) of the Tax Administration Act 1994 provides for the Commissioner with discretion, notwithstanding anything in the Inland Revenue Acts, consistent with the duty of the Commissioner to collect over time the highest net revenue that is practicable within the law having regard to-

1. The resources available to the Commissioner; and
2. The importance of promoting compliance, especially voluntary compliance, by all taxpayers with the Inland Revenue Acts; and
3. The compliance costs incurred by taxpayers.

The GST Act 1985 is specific on what adjustments can be made to future return periods and the previous operational policy, as per Tax Information Bulletin volume 4 number 7, can only be carried forward using the Care and Management provisions available to the Commissioner.

Compliance and Penalties Provisions

The introduction of the Compliance and Penalties Provisions signalled tougher rules, on use of money interest where errors occur, to compensate Government for the period of omission. From 1 April 1997, the Compliance and Penalty provisions emphasised the need for voluntary compliance with obligations to avoid use of money interest and other stringent penalties.

As the Commissioner has limited resources to detect non-compliance, cases that resemble voluntary error corrections should be viewed as low risk and given a means of simple resolution. The Care and Management provisions can be used to obtain resource efficiencies and promote compliance by encouraging self assessment corrections.

Tony Bouzaid
National Manager Operations Policy