Amending the rules for new and increased assessments by the Commissioner

(Clauses 113(1) and (5), 115, 117 and 118)

Summary of proposed amendment

A proposed amendment to section 142A of the Tax Administration Act 1994 will remove the requirement to set a new due date for the payment of tax resulting from a new or amended assessment made by the Commissioner of Inland Revenue. The timing and application of use-of-money interest (UOMI) and late payment penalties will remain unchanged.

The change will allow the Commissioner to apply credits or refunds that become available in payment of the taxpayer’s tax liability from the moment the Commissioner has made a new or increased assessment.

The proposed new rules will be built into Inland Revenue’s new software platform (START) and will apply to a tax type as and when the administration of that tax type is transitioned to START. This will happen in four stages.

Application date

The amendment will come into force on the date of enactment.

Key features

The bill proposes an amendment to section 142A so that the requirement to set a new due date for the payment of tax resulting from a new or increased assessment by the Commissioner made less than 30 days before, on or after the original due date is removed.

Consequential amendments to sections 139B and 139BA of the Tax Administration Act 1994 are proposed to ensure that taxpayers will be given the same amount of time as they are currently given for the payment of tax before late payment penalties are imposed and collection actions other than the application of credits and refunds occur. Consequential changes to section 142B are also proposed to ensure that taxpayers will have the same amount of time for payment of any shortfall penalties. Use-of-money interest will continue to apply from the day after the original due date for payment of the tax.

The only difference to the current rules will be that the Commissioner can apply credits or refunds the taxpayer has in payment of the taxpayer’s tax liability from the moment the tax has been assessed in the situations addressed by section 142A. This reduces taxpayers’ interactions with the tax system and their risk of exposure to penalties and UOMI. The amendment would also avoid customisation of Inland Revenue’s new software platform, which will minimise its long-term cost.

Inland Revenue is moving the administration of the tax system to a new software platform on a tax-type by tax-type basis, in stages over a period of several years (four stages). To facilitate this, an amendment is proposed to section 142A to provide the Commissioner with a discretion to set a new due date for payment of the tax for tax types that are still administered in the old software platform.

During stage 1 the administration of Goods and Services Tax (GST) is administered in START whereas the other tax types are administered in Inland Revenue’s old software platform (FIRST). This means, for example, that a taxpayer whose GST assessment is amended and increased will not receive a new due date for the payment of the increased amount of GST. The taxpayer will, however, have time for payment before late payment penalties apply. A taxpayer whose income tax assessment is amended and increased after the original due date will receive a new due date for payment of any increased income tax liability under the current rules during stage 1.

Background

At present, when the Commissioner makes a new assessment, or increases an assessment less than 30 days before, on or after the original due date for payment of the tax, a new due date is set for the payment of the tax resulting from the new or increased assessment (unless an exception applies). This is to allow the taxpayer time for payment before late payment penalties apply. The new due date is 30 or more days after the date of the notice of assessment (two calendar months in practice). A late payment penalty applies for amounts unpaid from the day after the new due date. Use-of-money interest, however, is calculated from the day after the original due date for payment of the tax for the assessed tax period.

When a new due date is set for payment, credits or refunds becoming available before the new due date are generally refunded to the taxpayer. The taxpayer then needs to make a payment to Inland Revenue by the new due date shortly after receiving the refund.

To give time before the imposition of late payment penalties on an assessment or re-assessment made close to, on or after the original due date, Inland Revenue’s FIRST software platform required a new due date to be set. Inland Revenue’s new START software platform has the ability to use the original due date for the payment of tax but allow time for payment before the imposition of late payment penalties. The effect of this is that the tax is due from the original due date and credits or refundable amounts are used to offset the tax liability. Incorporating a new due date rule would add to the complexity of the design of START.

Taxpayers will have the ability to seek refunds operationally for amounts applied in payment of a new or increased tax liability that would previously have been refunded.