Income equalisation deposits and refunds (October 2005) (WITHDRAWN)

This statement also appears in Tax Information Bulletin Vol 17, No 8.

Introduction

1. This Standard Practice Statement (SPS) sets out the Commissioner's practice in regard to the statutory powers to:
   • accept income equalisation deposits for a tax year outside the specified period, and
   • accept refund applications for a tax year outside the specified period.

Application

2. This SPS applies from the 2005-2006 and subsequent income years. Refer to GNL-400 Income equalisation deposits and refunds for periods prior to the 2005-2006 income year.



 
3. Unless specified otherwise, all legislative references in this SPS are to the Income Tax Act 2004.



 
4. Subject to the exceptions in paragraph 5 , this SPS applies to income equalisation deposits and refunds made under:
   • the main income equalisation scheme (under sections EH 3 to EH 37), and
   • the thinning operations income equalisation scheme (under sections EH 65 to EH 81).

5. This SPS does not apply to:
   • the adverse event income equalisation scheme (under sections EH 38 to EH 64)
   • refunds from the main income equalisation account to:
     • persons who retire, die or are adjudicated bankrupt (under sections EH 17 to EH 24), or
     • companies which are put into liquidation (under sections EH 25 and EH 26)
   • refunds from the thinning operations income equalisation account to companies which carry on a forestry business on land in New Zealand and are put into liquidation (under sections EH 77 and EH 78).

Summary

6. The main income equalisation scheme applies to taxpayers who are farmers, fishers or foresters.



 
7. The thinning operations income equalisation scheme applies to taxpayers who are companies that carry on a forestry business on land in New Zealand and derive income from carrying out thinning operations on the land.

Deposits

8. In some cases, an eligible taxpayer (as described in paragraphs 6 and 7 ) may make a deposit into the applicable income equalisation scheme after the end of the specified period for a tax year. The specified period is set in sections EH 37 and EH 81. Where the eligible taxpayer seeks to make a deposit after the specified period, the deposit has to be made by the date that the Commissioner sets by exercising the discretion in sections EH 4(4)(c)(i) and EH 66(4)(c)(i). (for the purpose of this SPS, this is to be referred to as "the required deposit date"). Furthermore, the taxpayer must, at the time of making the deposit, give the Commissioner notice that the deposit is for that tax year.



 
9. Subject to paragraphs 11 and 12, where the Commissioner exercises the discretion, the required deposit date is the earlier of:
   • one month from the date of filing the tax return for that tax year, and
   • one month from the date that the relevant tax return is due to be filed.



 
10. The due date for filing a tax return will include any extension of time arrangements agreed to by Inland Revenue.



 
11. However, the Commissioner will generally not exercise the discretion to allow the taxpayer to make deposits into the applicable income equalisation scheme after the end of the specified period if the specified period ends on a date later than the date determined by paragraph 9. In these cases, the required deposit date is the date on which the specified period ends.



 
12. The Commissioner will consider a taxpayer's request to make a late deposit on a case-by-case basis. The merits of the taxpayer's particular situation will be considered. A decision will be made on whether to accept the deposit for the requested tax year after taking full account of the taxpayer's particular circumstances.



 
13. Deposits made after the required deposit date and not accepted by the Commissioner as applying to the requested tax year may still be accepted by the Commissioner and applied to the tax year in which the deposits are made. The Commissioner will first contact the taxpayer to give them the option of continuing with the deposit or having it refunded back to them.



 
14. Where a taxpayer makes a deposit into the applicable income equalisation scheme and the deposit is physically received by Inland Revenue:
    • by the required deposit date, or
    • after the required deposit date and is accepted by the Commissioner,
    the taxpayer is allowed a deduction of the deposit made for the tax year, as set out in the taxpayer's notice when making the deposit.

Refunds

15. In some cases, an eligible taxpayer may apply for a refund from the applicable income equalisation scheme after the end of the specified period for a tax year. The specified period is set in sections EH 37 and EH 81. Where the eligible taxpayer seeks to make an application for a refund after the specified period, the application has to be made by the date that the Commissioner sets by exercising the discretion in sections EH 14(2)(a) and EH 74(2)(a) (for the purpose of this SPS, this is to be referred to as "the required application date"). Furthermore, t he taxpayer must elect in the application that the refund is deemed to be income in respect of that tax year.



 
16. Subject to paragraphs 17 and 18, where the Commissioner exercises the discretion, the required application date is the earlier of:
    • one month from the date of filing the tax return for that tax year; and
    • one month from the date that the relevant tax return is due to be filed.



 
17. However, the Commissioner will generally not exercise the discretion to allow the taxpayer to apply for a refund from the applicable income equalisation scheme after the end of the specified period if the specified period ends on a date later than the date determined by paragraph 16. In these cases, the required application date is the date on which the specified period ends.



 
18. The Commissioner will consider a taxpayer's late application for a refund on a case-by-case basis. The merits of the taxpayer's particular situation will be considered. A decision will be made on whether to accept the application for the refund after taking full account of the taxpayer's particular circumstances.



 
19. Where a taxpayer makes an application for a refund from the applicable income equalisation scheme and the application is physically received by Inland Revenue:
    • by the required application date, or
    • after the required application date and is accepted by the Commissioner,
    the refund is income derived by the taxpayer in the elected tax year.

20. Applications for refunds made after the required application date and not accepted by the Commissioner as applying to the elected tax year, may still be accepted by the Commissioner and applied to the tax year in which the applications are made. The Commissioner will first contact the taxpayer to give them the option of continuing with or withdrawing the application for a refund.



 
21. If the taxpayer continues with the application, the refund is income to the taxpayer in the tax year in which the Commissioner receives the application for the refund.

Background

22. The income equalisation scheme was introduced in 1965. At the time of introduction of the scheme it was stated that it would:
    • enable farmers to iron out rates of tax due to rises and falls in income;
    • encourage farmers to put aside part of their income in good years and to use this money for farm development in years when farm income falls;
    • help to remove a cause of inflation and therefore help to maintain a steadier rate of economic growth.
23. The scheme enables an eligible taxpayer to make income equalisation deposits with the Commissioner and claim a deduction against their income in the tax year in which the deposit is made or in the tax year requested by the taxpayer in their notice to the Commissioner when making a deposit.



 
24. When a refund is made from the scheme, the amount is included as part of the taxpayer's income in the tax year in which the application for refund is received or in the tax year elected by the taxpayer and this election is accepted by the Commissioner.



 
25. Since the implementation of the scheme, use-of-money interest (UOMI) has been introduced. Farmers are usually not in a position to know their final financial position until after liability for UOMI applies. Also, many farmers do not receive the bulk of their income until near the end of their tax year, meaning that they have not had the use of that money throughout the year. The income equalisation scheme provides an avenue for farmers to limit their exposure to UOMI.

Legislation

26. The relevant legislative provisions are:
    • Sub-part EH,
    • Sections BC 24, CX 43, DQ 1, DQ 3 and OB 1 (definitions of "specified period" and "tax year"), and
    • Sections 37 and 38 of the Tax Administration Act 1994 ("the TAA" ).

Discussion

Main income equalisation scheme

27. The following is a discussion of the issues surrounding deposits and refunds in relation to the main income equalisation scheme.
28. Section EH 1(1) allows an eligible taxpayer to reduce their income for any tax year by making an income equalisation deposit.
29. Pursuant to section EH 3(1), eligible taxpayers are:
    1. farmers who carry on a farming or agricultural business on land in New Zealand,
    2. fishers who carry on business of fishing, and
    3. foresters who derive income from forestry and who are not a company, or a public authority, or a Maori authority, or an unincorporated body.

Deposit

30. An eligible taxpayer may make a payment to the income equalisation scheme at any time during the tax year. (Refer to section EH 4(4)(a).)



 
31. Sections EH 4(4)(b) and (c) also allow an eligible taxpayer to make a deposit during the specified period (set in section EH 37) for the tax year, or within such later time as the Commissioner may allow after the end of the specified period. In either case, the taxpayer must, at the time of making the deposit, give the Commissioner notice that the deposit is for that tax year. Sections DQ 1 and EH 7 allow the taxpayer a deduction of the amount of the deposit in that tax year.



 
32. On a case-by-case basis, a taxpayer can request the Commissioner to accept a deposit of income equalisation after the specified period for a tax year and after the further time allowed by the Commissioner under section EH 4(4)(c).



 
33. Where such a request has not been accepted by the Commissioner, the deposit may, subject to consultation with the taxpayer, be applied to the tax year in which the deposit is made. Pursuant to sections DQ 1 and EH 7, the taxpayer is allowed a deduction of the amount of the deposit in that tax year.

Refund

34. Section EH 12 allows a taxpayer at any time, subject to certain restrictions, to make an application in writing for a refund from sums deposited in the scheme. Section EH 14 states that the refund is income derived by the taxpayer in the tax year in which the Commissioner receives their application for the refund.



 
35. Where an application for a refund is received:
    • in the specified period (set in section EH 37) for a tax year, or
    • within such later time as the Commissioner allows after the end of the specified period,
    section EH 14(2) and (3) state that any refund made, if the taxpayer so elects, is income derived by the taxpayer in the elected tax year.

36. A taxpayer can make an application for a refund on a case-by-case basis after the specified period for a tax year and after the further time allowed by the Commissioner under section EH 14(2)(a).



 
37. Where such an application has not been accepted by the Commissioner, the refund may, subject to consultation with the taxpayer, be applied to the tax year in which the application for the refund is made. Pursuant to sections CB 24 and EH 14, the refund is income derived by the taxpayer in that tax year.

Thinning operations income equalisation scheme

38. The following is a discussion of the issues surrounding deposits and refunds in relation to the thinning operations income equalisation scheme. The rules on the thinning operations income equalisation scheme are similar to those that apply for deposits and refunds to the main equalisation scheme as discussed above.



 
39. Pursuant to section EH 65(1), eligible taxpayers to this scheme are companies that carry on a forestry business on land in New Zealand and derive income from carrying out thinning operations on the land.



 
40. The thinning operations income equalisation scheme does not apply to taxpayers who are natural persons.

Deposit

41. An eligible taxpayer may make a payment to the Commissioner for entry in their thinning operations income equalisation account during the tax year. (Refer to section EH 66.)



 
42. Sections EH 66(4)(b) and (c) also allow an eligible taxpayer to make a deposit during the specified period (set in section EH 81) for the tax year, or within such later time as the Commissioner may allow after the end of the specified period. In either case, the taxpayer must, at the time of making the deposit, give the Commissioner notice that the deposit is for that tax year. Sections DQ 3 and EH 69 allow the taxpayer a deduction of the amount of the deposit in that tax year.



 
43. On a case-by-case basis, a taxpayer can still request the Commissioner to accept a deposit of income equalisation after the specified period for a tax year and after the further time allowed by the Commissioner under section EH 66(4)(c).



 
44. Where such a request has not been accepted by the Commissioner, the deposit may, subject to consultation with the taxpayer, be applied to the tax year in which the deposit is made. Pursuant to sections DQ 3 and EH 69, the taxpayer is allowed a deduction of the amount of the deposit in that tax year.

Refund

45. Section EH 72 allows a taxpayer at any time, subject to certain restrictions, to make an application in writing for a refund from sums deposited in the scheme. Section EH 74 states that the refund is income derived by the taxpayer in the tax year in which the Commissioner receives the application for the refund.



 
46. Section EH 74(2) states where an application for a refund is received in the specified period (set in section EH 81) for a tax year, or within such later time as the Commissioner allows after the end of the specified period, any refund made, if the taxpayer so elects, is income derived by the taxpayer in the elected tax year.



 
47. On a case-by-case basis, a taxpayer can make an application for a refund after the specified period for a tax year and after the further time allowed by the Commissioner under section EH 74(2)(a).



 
48. Where such an application has not been accepted by the Commissioner, the refund may, subject to consultation with the taxpayer, be applied to the tax year in which the application for the refund is made. Pursuant to sections CB 24 and EH 74, the refund is income derived by the taxpayer in that tax year.

Specified period

49. "Specified period" is defined in section OB 1, which refers to other legislative provisions for the purposes of different income equalisation schemes. For example, the definition of "specified period" for the purposes of the thinning operations income equalisation scheme is found in section EH 81.



 
50. The definition of "specified period" for the purposes of the main income equalisation scheme and the thinning operations income equalisation scheme are similar. The relevant "specified period" for an eligible taxpayer is the shorter of:
    • the period of six months after the end of the accounting year that corresponds to the tax year, and
    • the period from the end of the accounting year (which corresponds to the tax year) to the date one month after the due date of filing the taxpayer's return of income (including any extension of time arrangements agreed to by Inland Revenue).



 
51. This is demonstrated by the following examples:
    
    Example 1
    
    30 June 2006 balance date (with an extension of time arrangement for filing the return of income to 31 March 2007). The specified period is the shorter of:
    • the period of six months after the end of the accounting year that corresponds to the tax year - 1 July to 31 December 2006, and
    • the period from the end of the accounting year to one month after the tax return is due - 1 July 2006 to 30 April 2007.
    
    
    Example 2
    
    30 June 2006 balance date (without extension of time arrangement). The specified period is the shorter of:
    • the period of six months after the end of the accounting year that corresponds to the tax year - 1 July to 31 December 2006, and
    • the period from the end of the accounting year to one month after the tax return is due - 1 July to 7 November 2006 (being one month after return filing due date of 7 October 2006 (see section 37(1) of the TAA)).



 
52. In the first example the specified period ends on 31 December 2006, whereas in the second example the specified period ends on 7 November 2006.

Commissioner's discretion

53. The Commissioner may accept a deposit or an application for refund for a particular tax year outside the specified period. For example, section EH 4(4)(c)(i) allows an eligible taxpayer to make a deposit in the main income equalisation scheme "within a time that is after the end of the specified period but that is allowed by the Commissioner in a case or class of cases".



 
54. What needs to be considered is how the Commissioner should exercise that discretion.



 
55. Case law has determined that a statutory power conferred to a public authority (eg discretion) cannot be unfettered or arbitrary. Also, discretion must be used reasonably. In Roberts v Hopwood [1925] AC 578, Lord Wrenbury stated:

    "A person in whom is vested a discretion must exercise his discretion upon reasonable grounds. A discretion does not empower a man to do what he likes merely because he is minded to do so - he must in the exercise of his discretion do not what he likes but what he ought. In other words, he must, by the use of his reason, ascertain and follow the course which reason directs. He must act reasonably."

56. When an authority (such as Inland Revenue) considers whether it will exercise the discretion, it needs to consider each case on its own merits. Blindly dismissing cases as being not within policy is an abuse of power. An authority may make policies but the policies cannot be over-rigid. This is highlighted in Gisborne Mills Ltd v CIR (1989) 11 NZTC 6,194. Robertson J found that the Commissioner had failed to exercise a discretion which Parliament had given him. By failing to discharge a statutory responsibility, an abuse has arisen and the Commissioner's decision was subject to review by the Court.



 
57. In Lawton v Commissioner of Inland Revenue [2003] 2 NZLR 48, the Court of Appeal held that the Commissioner had not properly exercised the discretion in section 30(2) of the Income Tax Act 1976, which deals with acceptance of a late objection.



 
58. Glazebrook J, delivering the unanimous judgment of the Court, reiterated the dicta in CIR v Wilson (1996) 17 NZTC 12,512 , which stated that:

    "the merits of a proposed [late] objection must be considered unless the explanation for the lateness of the objection is so inadequate that this is unnecessary."

59. In Lawton , it was held that the taxpayer had given a full and credible explanation for the lateness of the objection. The Court held:

    "… In such a case, unless [the] explanation was palpably untrue or quite unjustified, it would be rare for the explanation to be deemed so inadequate that the merits need not be examined."

60. The Lawton case contains some recent judicial comments on the manner in which the Commissioner should exercise discretions in the Inland Revenue Acts.



 
61. In considering whether to accept a taxpayer's request for a deposit after the required deposit date or a taxpayer's application for a refund after the required application date, the Commissioner is obliged to consider the merits of the taxpayer's explanation for the lateness of the request or the application. The request or the application cannot simply be dismissed. The Commissioner, after considering the merits of the explanation, may or may not accept the deposit or refund for the elected tax year.

What is reasonable?

62. For the purpose of the main income equalisation scheme, section EH 3 allows an eligible taxpayer to make payments, during any tax year, to the scheme in respect of that tax year. Section EH 4 allows the taxpayer to make a deposit of income equalisation within the tax year or during the specified period. Section EH 4(4)(c)(i) grants the Commissioner discretion to extend the time for eligible taxpayers to make deposits after the end of the specified period.



 
63. Similarly, in section EH 66(4)(c)(i), for the purpose of the thinning operations income equalisation scheme, the Commissioner has discretion to extend the time for eligible taxpayers to make deposits after the end of the specified period.



 
64. Commonly, it will not be until the taxpayer's set of accounts and tax return are completed before the taxpayer's financial situation for an accounting year will be known. From this, the decision on whether to make a deposit to the applicable income equalisation scheme, and of how much, would be made.



 
65. Taking this into consideration, it would be reasonable to expect an eligible taxpayer to make a deposit to the scheme (for that particular tax year) at the time of filing their tax return, provided the tax return is filed by the filing due date. This date could potentially be 31 March of the following year if the taxpayer has an extension of time arrangement.



 
66. However it may not be possible or practicable for the deposit to be sent in with the tax return. An example is e-filed tax returns and it may also take a tax agent sometime to arrange the sending in of the deposit. Therefore a reasonable period of time after the tax return filing date should be allowed, so that the eligible taxpayer can forward the deposit to Inland Revenue.



 
67. Where the specified period is shorter than the period of six months from the end of the accounting year that corresponds to the tax year, the legislation allows one month after the due date for filing a return in the definition of a specified period. (Refer to sections EH 37 and EH 81.) No deduction will be allowed until the deposit is physically received by Inland Revenue. The return will be reassessed to allow the deduction when the deposit is received.



 
68. Subject to paragraph 74 , it seems reasonable to allow eligible taxpayers to make income equalisation deposits after the end of the specified period and by the earlier of:
    • one month from the date of filing the tax return for that tax year, and
    • one month from the date that the relevant tax return is due to be filed.



 
69. The following example illustrates the effect of this practice:
    
    Example 3
    
    A taxpayer has a tax agent. The taxpayer has a balance date of 31 March. For the 2006 income year, the tax agent has an extension of time arrangement to file the taxpayer's tax return until 31 March 2007. The tax return for the taxpayer is filed on 31 October 2006.
    
    The specified period for making deposits into the income equalisation scheme is the shorter of:
    • the period of six months after the end of the accounting year that corresponds to the tax year - 1 April to 30 September 2006, and
    • the period from the end of the accounting year to one month after the tax return is due - 1 April 2006 to 30 April 2007 (being one month after return filing due date of 31 March 2007 (see section 37(1) of the TAA)).
    
    
    For an income equalisation deposit to be accepted for the 2006 income year, the Commissioner exercises the discretion under section EH 4(4)(c) to allow the taxpayer to make the deposit by 30 November 2006, which is the earlier of:
    • one month from the date of filing the tax return (i.e. 30 November 2006), and
    • one month from the due date of filing the tax return (ie 30 April 2007).
    
    
    In the same scenario but were instead the return is filed on 1 May 2007, a deposit would need to be paid by 30 April 2007, which is the earlier of:
    • one month from the date of filing the tax return (i.e. 1 June 2007), and
    • one month from the due date of filing the tax return (ie 30 April 2007).
    
    
    In both of the above scenarios, if the taxpayer cannot make the deposit within the time allowed by the Commissioner and there are valid reasons for it, the Commissioner will consider the merits of the taxpayer's situations and may accept the late deposits on a case-by-case basis.



 
70. For taxpayers without extension of time arrangements, deposits in respect of a tax year will be accepted up to the end of the specified period, which is the shorter of six months immediately following the end of the accounting year that corresponds to the tax year and one month after the return is required to be filed. These taxpayers may also make deposits after the end of the specified period. (Refer to paragraph 68 .)



 
71. However, in some cases, the taxpayer is required to make the deposit into the income equalisation scheme by the end of the specified period. The Commissioner will generally not exercise the discretion under section EH 4(4)(c) because the specified period ends on a date later than the date that would be determined by exercising the Commissioner's discretion. This is illustrated by the following example:
    
    Example 4
    
    A taxpayer with a 30 June 2006 balance date will be required to file their tax return by 7 October 2006 (see section 37(1) of the TAA). The taxpayer files their tax return on 30 September 2006. Pursuant to section EH 4(4)(b), the taxpayer may make a deposit to the main income equalisation scheme during the specified period, which is the shorter of:
    • the period from the end of the accounting year that corresponds to the tax year to one month after the tax return is due - 1 July 2006 to 7 November 2006, and
    • six months from the accounting year that corresponds to the tax year - 1 July to 31 December 2006.
    
    
    The taxpayer should generally make the deposit by the end of the specified period, ie 7 November 2006. This is a later date than the date that would be determined by exercising the discretion under section EH 4(4)(c), ie 31 October 2006, which is the earlier of:
    • one month from the date of filing the tax return (ie 31 October 2006), and
    • one month from the due date of filing the tax return (ie 7 November 2006).
    
    
    However, if the taxpayer cannot make the deposit by 7 November 2006 and there are valid reasons for it, the Commissioner will consider the merits of the taxpayer's situations and may accept the late deposits on a case-by-case basis.



 
72. The Commissioner will exercise the discretion under section EH 4(4)(c) if the specified period ends on a date earlier than the date determined by exercising that discretion. The following example illustrates this:
    
    Example 5
    
    A taxpayer with a 30 November 2005 balance date will be required to file their tax return by 7 July 2006 (see section 37(1) of the TAA). The taxpayer files their tax return by 30 June 2006. Pursuant to section EH 4(4)(b), the Commissioner exercises the discretion to allow the taxpayer to make a deposit to the main income equalisation scheme during the specified period, which is the shorter of:
    • the period from the end of the accounting year that corresponds to the tax year to one month after the tax return is due - 1 December 2005 to 7 August 2006, and
    • six months from the accounting year that corresponds to the tax year - 1 December 2005 to 31 May 2006.
    
    
    However, the taxpayer may make a deposit after the end of the specified period, ie 31 May 2006. Pursuant to section EH 4(4)(c), the taxpayer may make an income equalisation deposit by 31 July 2006, which is the earlier of:
    • one month from the date of filing the tax return (ie 31 July 2006), and
    • one month from the due date of filing the tax return (ie 7 August 2006).
    
    
    If the taxpayer cannot make the deposit by 31 July 2006 and there are valid reasons for it, the Commissioner will consider the merits of the taxpayer's situations and may accept the late deposits on a case by case basis.



 
73. For taxpayers who do not have a tax agent and require an extension of time to file their income tax return, please refer to the separate SPS on extension of time applications from taxpayers without tax agents.



 
74. Where an eligible taxpayer makes a deposit after the required deposit date, the Commissioner will take into account the merits of the taxpayer's situation and the reasons why the deposit was not made before the required deposit date. The Commissioner will consider these on a case-by-case basis.



 
75. Reasons could include, but are not limited to, incorrect advice from the taxpayer's tax agent or a sudden or unexpected change in circumstances. However, these examples are not indicative of situations when a request for a late deposit will automatically be accepted. All factors must be considered before the Commissioner accepts the deposit as being made in the requested tax year.



 
76. The Commissioner will apply similar principles (as stated in paragraphs 62 to 75 of this SPS) to an eligible taxpayer's application for a refund after the required application date.

Standard Practice

The following standard practice has been developed from the above principles.

77. The main income equalisation scheme applies to taxpayers who are farmers, fishers or foresters.



 
78. The thinning operations income equalisation scheme applies to taxpayers, who are companies that carry on a forestry business on land in New Zealand and derive income from carrying out thinning operations on the land.

Deposits

79. Eligible taxpayers may make a deposit to the applicable income equalisation scheme for any tax year at any time during that tax year.



 
80. A deposit made during the specified period in relation to any tax year will be treated as having been made in respect of that tax year. The specified period is set in sections EH 37 and EH 81.



 
81. In some cases, an eligible taxpayer may make a deposit into the applicable income equalisation scheme by the required deposit date after the end of the specified period for a tax year. Furthermore, the taxpayer must, at the time of making the deposit, give the Commissioner notice that the deposit is for that tax year.



 
82. The required deposit date, which is determined by exercising the Commissioner's discretion in sections EH 4(4)(c)(i) and EH 66(4)(c)(i), is the earlier of:
    • one month from the date of filing the tax return for that tax year, and
    • one month from the date that the relevant tax return is due to be filed.



 
83. However, the Commissioner will generally not exercise the discretion to allow the taxpayer to make deposits into the applicable income equalisation scheme after the end of the specified period if the specified period ends on a date later than the date determined by paragraph 82 . In these cases, the required deposit date is the date on which the specified period ends.



 
84. Generally, the Commissioner will not accept a deposit for a tax year after the required deposit date. The Commissioner will consider, at a taxpayer's request, to make a late deposit on a case-by-case basis. The merits of the taxpayer's particular situation will be considered. A decision will be made on whether to accept the deposit for the requested tax year after taking full account of the taxpayer's particular circumstances.



 
85. Deposits made after the required deposit date and not accepted by the Commissioner as applying to the requested tax year, may still be accepted by the Commissioner and applied to the tax year in which the deposits are made. The Commissioner will first contact the taxpayer to give them the option of continuing with the deposit or having it refunded back to them.



 
86. Where a taxpayer makes a deposit into the applicable income equalisation scheme and the deposit is physically received by Inland Revenue:
    • by the required deposit date, or
    • after the required deposit date and is accepted by the Commissioner,
    the taxpayer is allowed a deduction of the deposit made for the tax year, as set out in the taxpayer's notice when making the deposit.

Refunds

87. Eligible taxpayers may make an application for a refund from the applicable income equalisation scheme for any tax year at any time during that tax year although the Commissioner can only refund amounts which have been deposited for at least 12 months. The Commissioner may need to wait for the expiry of this period in order to make the refund, after receiving an application.



 
88. Generally, a refund is treated as having been made in the tax year in which the Commissioner receives the application for the refund. An application for a refund made during the specified period in relation to any tax year will be treated as having been made in respect of that tax year. The specified period is set in sections EH 37 and EH 81.



 
89. In some cases, an eligible taxpayer may apply for a refund from the applicable income equalisation scheme by the required application date after the end of the specified period for a tax year. Furthermore, t he taxpayer must elect in the application that the refund is deemed to be income in respect of that tax year.



 
90. The required application date, which is determined by exercising the Commissioner's discretion in sections EH 14(2)(a) and EH 74(2)(a), is the earlier of:
    • one month from the date of filing the tax return for the tax year, and
    • one month from the date that the relevant tax return is due to be filed.



 
91. However, the Commissioner will generally not exercise the discretion to allow the taxpayer to apply for a refund from the applicable income equalisation scheme after the end of the specified period if the specified period ends on a date later than the date determined by paragraph 90 . In these cases, the required application date is the date on which the specified period ends.



 
92. Generally, the Commissioner will not accept an application for a refund for an elected tax year after the required application date. However, the Commissioner will consider a taxpayer's late application for a refund on a case-by-case basis. The merits of the taxpayer's particular situation will be considered. A decision will be made on whether to accept the application for the refund after taking full account of the taxpayer's particular circumstances.



 
93. Where a taxpayer makes an application for a refund from the applicable income equalisation scheme and the application is physically received by Inland Revenue:
    • by the required application date, or
    • after the required application date and is accepted by the Commissioner,
    the refund is income derived by the taxpayer in the elected tax year.



 
94. Applications for refunds made after the required application date and not accepted by the Commissioner as applying to the elected tax year, may still be accepted by the Commissioner and applied to the tax year in which the applications are made. The Commissioner will first contact the taxpayer to give them the option of continuing with or withdrawing the application for a refund.



 
95. If the taxpayer continues with the application, the refund is income to the taxpayer in the tax year in which the Commissioner receives the application for the refund.

This Standard Practice Statement is signed on 2 September 2005.

Graham Tubb
National Manager, Technical Standards