Self-correcting errors in subsequent tax returns

By Veronica Harley

Taxpayers may self-correct errors in subsequent tax returns, provided the error is minor or not material. With effect from 18 March 2019, a new “non-material error” threshold rule has been introduced that is intended to make it easier for taxpayers to self-correct errors in income tax, goods and services tax (GST) and fringe benefits tax (FBT) returns. 

Non-material errors

Under the new rule, an error can be self-corrected if the total tax discrepancy in the assessment (that is discovered after 18 March 2019) is equal to or less than the lower of:

• NZD 10,000 of annual gross income (for income tax and FBT returns) or output tax (in the case of a GST return); and
• 2% of the taxpayer’s annual gross income (for income tax and FBT returns) or output tax (in the case of a GST return).

This new rule will not apply if the Inland Revenue considers a taxpayer is applying the new NZD 10,000 threshold with the main purpose of delaying the payment of tax.

Minor errors resulting in no more than NZD 1,000 tax payable

The previous NZD 1,000 rule has been retained, but slightly modified. Errors can be corrected where the total discrepancy is NZD 1,000 or less. This is similar to how the rule worked previously, except the NZD 1,000 threshold now is available without the requirement that it be caused by a “clear mistake, simple oversight or mistaken understanding.” 

Comments

The specific words of the new rule are slightly confusing, however we have confirmed with Inland Revenue that both the NZD 10,000 and NZD 1,000 amounts are both tax effected amounts. Thus the quantum of each error will be dependent on the tax type (GST, FBT or income tax), tax rates applicable to a taxpayer and the return frequency type.

This new rule is welcome and will help reduce compliance costs for taxpayers. It should reduce the incidence of taxpayers needing to make formal voluntary disclosures or the need to request the Commissioner make amended assessments for smaller value errors that do not breach the above thresholds. However, care should be taken to ensure the rules are applied correctly. For more information, please contact your usual Deloitte advisor.

June 2019 Tax Alert contents

• How are you affected by new individual tax assessment regime?
• Cautionary tale of GST in land transactions
• IR and ATO release administrative approach to determining residence
• What’s the buzz with tax and charities?
• KiwiSaver – flexibility, suspensions, and those over 65
• Tax Bill returns from the Finance and Expenditure Committee with modifications
• Depreciation myths debunked
• GST legislation one step closer to enactment
• GST obligation changes for digital services to Singapore
• Snapshot of recent developments