Claiming missed GST — the one that (nearly) got away?Tax Alert - October 2009 |
We frequently become aware of significant amounts of GST which clients are owed from earlier periods due to various accounting system errors but which have not yet been recovered from the Inland Revenue.
There are two main methods by which these GST refund amounts from earlier periods can be reclaimed from the Inland Revenue, being a prior period adjustment under section 113 of the Tax Administration Act or a current period adjustment under section 20(3) of the GST Act.
A recently released “Questions we’ve been asked” (QB09/04) aims to clarify Inland Revenue’s position on when each method should be applied.
The document confirms that a claim for input tax in a later period should first be made under section 20(3) and input tax claims that cannot be made under this provision should be made under section 113, if possible. While there can be some debate on some of the technical aspects of the approach the Inland Revenue is suggesting, the end result of the proposed approach matches what has generally occurred in practice in most situations.
Generally, GST registered persons have two years to claim input tax in a current period before the right to claim the GST is forfeited under section 20(3). However, there are certain situations where this claim period can be extended beyond the two year period, such as where there is a clear mistake.
Alternatively, taxpayers may seek to use section 113. This provision gives the Commissioner discretion to amend an earlier period assessment as he thinks necessary to ensure its correctness. The document discusses that while the Commissioner is not prevented from exercising his discretion under section 113 to allow an input tax claim in an earlier period, he will generally not do so if section 20(3) could be used to make a current period claim for the GST amount. This is because a specific mechanism to correct the failure to claim already exists by virtue of section 20(3). The document does state the Commissioner will consider exercising his discretion under section 113 in certain limited circumstances to allow adjustments for earlier periods.
In practice it can be difficult to force the Commissioner to exercise his discretion to re-open an earlier period that is in a refund situation, however section 113 prior period adjustments should be carefully considered if, in addition to GST refunds, there are also additional GST liabilities due for earlier periods, as these amounts can be offset to reduce penalties and use of money interest charges.
Conclusion
When GST has not been claimed in an earlier period from a practical perspective, section 20(3) should generally be used in the first instance to make a current period claim for earlier unclaimed GST amounts, as there is no requirement for the Inland Revenue to exercise its discretion.
Regardless of the method used, to recover outstanding GST amounts from Inland Revenue, it is useful for GST registered businesses to ensure the GST is recovered as soon as possible, to both maximise cash flow and minimise the risk of certain procedural difficulties delaying or preventing GST refund payouts.
Therefore it is useful to regularly review your GST system to ensure all available amounts of GST are being claimed as early as possible.
If you have any queries on amending a GST assessment, please contact your Deloitte advisor or one of our specialists in the Indirect Tax Team.
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Dunedin |
| Peter Felstead Partner, Tax +64 (0) 9 303 0860 |
Andrea Scatchard Associate Director, Tax +64 (0) 7 838 7808 |
Donald Wong Partner, Tax +64 (0) 4 495 3923 |
Helen Lineham Associate Director, Tax +64 (0) 3 363 3763 |
Mark Storer Manager, Tax +64 (0) 3 363 3730 |
| Allan Bullot Partner, Tax +64 (0) 9 303 0732 |
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| Jeanne Du Buisson Associate Director, Tax +64 (0) 9 303 0805 |
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| Charlotte Mannia Manager, Tax +64 (0) 9 303 0753 |