Chapter 8 - Administration
Six-monthly taxable periods
8.1 The default tax filing period for GST returns is two monthly. However, if a registered person makes or is likely to make taxable supplies that exceed $24,000,000 in a 12-month period, they must file monthly. Taxpayers can choose to file GST returns on a six monthly basis if they do not make, or are not likely to make, over $500,000 in taxable supplies in a 12-month period.
8.2 Section 15C(2) provides a discretion for the Commissioner to allow a registered person to file on a six-monthly basis, even though their taxable supplies exceed this threshold. This is intended to reduce compliance costs for businesses that have only just reached the threshold, and for businesses that operate on a seasonal basis (for which accounts are generally prepared at the end of the season). For these taxpayers, the compliance costs associated with two-monthly filing may be disproportionately high when balanced against the benefit to the Government in revenue terms.
Dwight operates a ski-hire shop, which is only open during winter. During the other months, Dwight leaves New Zealand. If Dwight filed two-monthly GST returns, he would need to file a number of nil returns while outside New Zealand.
8.3 Section 15C(2) provides factors for the Commissioner to consider in exercising her discretion to allow a registered person who exceeds the $500,000 threshold to file on a six-monthly basis. These factors are:
- the person's history in filing returns and paying tax liabilities;
- the person's financial reporting practices;
- the nature and volume of the person's taxable supplies;
- the previous use of a six-month cycle.
8.4 Inland Revenue has published guidelines on how it will exercise this discretion, which state that Inland Revenue will consider whether the taxpayer:
- has a good compliance history;
- has satisfactory record-keeping practices and the cost of more regular filing would be excessive; and
- the value of annual taxable supplies is subject to seasonal or low volume / high value cashflow peaks.
8.5 When the exception to the $500,000 threshold for six-monthly filing was introduced in 2000, it was created as a discretion to be exercised by Inland Revenue. This reflected the approach at the time where Inland Revenue directed taxpayers to file using particular taxable periods.
8.6 Since then, amendments have been made to reduce compliance and administrative costs by allowing registered persons to self-assess their filing basis, depending on their volume of taxable supplies. Consistent with this approach, the discretion in section 15C(2) could be replaced with a test that allows a registered person to determine whether they are eligible for six-monthly filing, even though they have exceeded the $500,000 threshold.
8.7 The test would be designed to achieve the same policy intent as the current discretion, which is targeted to apply to seasonal businesses and those that have only just exceeded the threshold. The test could allow six-monthly filing where a registered person makes most or all of their taxable supplies in one season, or for “one-off” occasions when they have exceeded the threshold but expect to remain under the threshold in future.
8.8 The “one-off” exception recognises that there may be factors that distort a registered person’s pattern of taxable supplies, which could cause them to exceed the threshold but may not be repeated. In these cases, it is appropriate to relieve the registered person from incurring the compliance costs of adjusting to file returns on a more regular basis, such as changing their accounting system and practices.
8.9 A registered person would qualify for the “one-off” exception when they have exceeded the threshold for six-monthly filing in one taxable period, but are not likely to make taxable supplies over $500,000 in a 12-month period following that taxable period. This means that, for example, if a registered person has exceeded the threshold due to a steady increase in taxable supplies over time, they would not qualify for the exception.
8.10 The exception would only be available on a “one-off” basis, as if the registered person makes or is likely to make taxable supplies of over $500,000 in a 12-month period following the taxable period in which the exception is used, they would be required to change to two-monthly filing.
8.11 Consistent with the current discretion, the exception would only be available if the taxpayer has met their GST obligations to file and pay on time in the past. Taxpayers that have previously failed to comply with their obligations pose a greater future compliance risk and should not be allowed to file less regularly than other taxpayers that exceed the threshold. For the purposes of the test, the taxpayer’s compliance history could be measured over the previous two years (or since registration if they have been registered for less than two years).
8.12 A registered person would be required to monitor their eligibility for six-monthly filing, and to notify Inland Revenue if they no longer met the requirements to file on this basis. Unless the exception applied, where a registered person had exceeded the $500,000 threshold they would be required to file on a one or two-monthly basis as necessary.
8.13 The Commissioner’s discretion would be replaced with a test that a registered person can apply to determine whether they are eligible for six-monthly filing despite exceeding the $500,000 threshold.
8.14 The exception would apply:
- when a registered person makes most or all of their taxable supplies in one season; or
- on a one-off basis, where a registered person has exceeded the six-monthly filing threshold but is not likely to make taxable supplies of over $500,000 in the 12-month period following the taxable period in which they have exceeded the threshold; and
- the registered person has met their GST obligations to file and pay on time in the past two years (or since registration if they have been registered for less than two years).
8.15 This amendment could also resolve a number of minor technical issues that have been identified with the current drafting of section 15C. The changes would apply from a registered person’s next taxable period following enactment of the amending legislation.
Notification that a refund is being withheld
8.16 If a person’s input tax deductions exceed their output tax liability, a refund is available. Section 46 provides for the Commissioner to withhold refunds that have been claimed in order to investigate the circumstances of a return. If the Commissioner wishes to withhold a payment while she investigates a return, she must notify the registered person of her intention within 15 working days.
8.17 The Court of Appeal in Inland Revenue v Sea Hunter Fishing Ltd (2002) 20 NZTC 17,468 found that this means that the taxpayer must have received the notice or have been deemed to have received the notice in the ordinary course of post in this timeframe.
8.18 The current approach of setting the time limit with reference to when the notice is received, rather than when it is issued, is not consistent with other notice provisions contained in the Tax Administration Act 1994.
8.19 Setting the time limit by reference to the time that the notice is issued would provide greater certainty for both parties in determining when the notice requirements under the provision have been met, as the time when the notice is issued is a more definite requirement that can be more easily determined by both parties. It would also ensure that the timeframe for Inland Revenue to perform checks is not affected by changes to postal delivery schedules.
8.20 The change would also better enable Inland Revenue to conduct appropriate checks within the legislative time limit without resorting to issuing a formal notice. The proposed change would be unlikely to result in delays for taxpayers.
8.21 The requirement that the Commissioner notify the registered person of the withheld refund within 15 days following the day the return is received could be replaced with a requirement that the Commissioner issue the notice within the specified period.
Refunds when tax is overpaid, due to a clear mistake or oversight
8.22 The time period in which a registered person may be refunded overpaid tax is generally within four years of the overpayment. When the overpayment of tax is the result of a clear mistake or simple oversight, this period may be extended by a further four years.
8.23 Currently, the extended period under section 45(4) only applies when:
- tax has been overpaid as a result of an amended assessment that increased the amount payable (section 45(2)); or
- tax has been overpaid as a result of the registered person being paid less than the refund that they were entitled to in the period (section 45(3)).
8.24 The extended period is not available for an overpayment of tax that falls within section 45(1), which applies when a registered person has paid tax in excess of the amount properly payable in the period. This is an anomalous outcome that does not reflect the policy intent of the provision.
8.25 An amendment should be made to section 45(4) to allow the extension of the time limit in which the Commissioner must refund overpaid tax to circumstances in which section 45(1) applies. Officials suggest that this amendment should apply for taxable periods beginning on or after 1 April 2005, which was the date on which the current provision applied.