Increased threshold for taxpayer self-corrections of minor errors

(Clause 105)

Summary of proposed amendment

The proposed amendment increases the self-correction threshold for minor errors from $500 to $1,000. This will allow taxpayers to correct simple errors of up to $1,000 in their next tax return.

Application date

The proposed amendment will come into force on 1 April 2017.

Key features

Section 113A of the Tax Administration Act 1994 allows a taxpayer to self-correct a minor error in a tax return if the tax difference is below the specified threshold. The error is corrected by the taxpayer making the appropriate adjustment in their next tax return. The proposed amendment increases the threshold for self-correction from $500 to $1,000 and is intended to reduce compliance and administrative costs.

Background

Currently if a taxpayer makes a minor error in their tax return with a tax effect of less than $500, they can self-correct the error in their next tax return. However, if the error results in more than a $500 tax difference, the taxpayer must request the Commissioner to correct the error. Interest and penalties will usually be payable on the shortfall corrected by the Commissioner.

The proposed amendment will remove the compliance costs of having to apply to the Commissioner for an adjustment for minor errors resulting in less than a $1,000 tax difference. It will also reduce the administration costs, as Inland Revenue will not have to manage these low-value items.