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Inland Revenue

Tax Policy

Chapter 4 - Timing of refunds

Proposed change

It is proposed that Inland Revenue would have 15 working days to issue a notice of any investigation to a GST-registered person. This changes the current position which requires the notice to be delivered to the registered person within 15 days.

4.1 An important feature of the way GST applies to business-to-business transactions is the purchaser’s ability to obtain refunds when input tax deductions exceed the output tax charged in a given taxable period.

4.2 When the calculation of tax payable results in a refund of GST – that is, when input tax deductions exceed output tax – Inland Revenue is required to pay that refund within 15 working days from the day following Inland Revenue’s receipt of the relevant return.[3] The GST-registered person must be notified within 15 working days if Inland Revenue intends to investigate the return and withhold payment. Subject to the four-year time bar, Inland Revenue is not precluded from investigating a return after the 15-working day period.

4.3 Following the Seahunter cases, notice must be received by the GST-registered person within 15 working days.[4] A timeframe based on receipt by the taxpayer rather than notification by Inland Revenue may in certain cases give Inland Revenue insufficient time to respond to transactions that could affect the integrity of the tax base. The officials’ paper suggested extending the period of giving notices of the investigation and the withholding of payment to 20 working days.

4.4 Having reviewed the issue in the light of submissions, and given the cashflow difficulties which the government recognises many businesses are currently facing, the option to increase the notice period to 20 working days will no longer be pursued. Instead, it is proposed to amend the legislation to specify that the 15 working days rule will be satisfied if Inland Revenue issues a notice of any investigation to a registered person within 15 days of receipt of the return, irrespective of whether the notice has been received by the person within that period. This would bring the legislation in line with practice as it was intended and understood before the Seahunter cases.

4.5 The proposed amendment would allow Inland Revenue more time to analyse borderline applications, thus improving the protection of the GST base. Since the vast majority of refund applications do not give Inland Revenue cause for concern, they should not be affected by this change and Inland Revenue will continue to consider ways in which refunds can for the most part be expedited.


3 It is at the Commissioner’s discretion whether refunds may be used to offset other tax debts.
4 See Seahunter Fishing Limited v Commissioner of Inland Revenue (2001) 20 NZTC 17,206 and Commissioner of Inland Revenue v Seahunter Fishing Limited (2002) 20 NZTC 17,478.