Tax Bites #11
About the Author:
MURRAY McCLENNAN
Director at Tax Central
A chartered accountant and a member of the International Fiscal Association and the Society of Trust and Estate Practitioners, Murray has over 30 years experience in tax.
Although New Zealand has had GST for over 30 years, taxpayers and advisers alike continue to make errors. This article discusses the four most common GST errors and the rules for correcting GST errors.
The most common GST errors
1. Failing to register for GST
Registration for GST is required when turnover in respect of a taxable activity in a 12-month period exceeds $60,000. Specifically, section 51(1) of the Goods and Services Tax Act 1985 (the Act) states that registration is required when either:
• At the end of a month the turnover for that month and the previous 11 months exceeds $60,0000; or
• At the commencement of a month there is a reasonable expectation that turnover for that month and the next 11 months will exceed $60,000.
If the threshold for registration has been breached and registration was not completed, the person or entity conducting the taxable activity is deemed to be registered for GST. If so, the registration continues until it is formally cancelled.
2. Claiming GST in error
A GST-registered person may claim input credits on expenses incurred or second-hand goods acquired in conducting a taxable activity. Sometimes input is claimed when it should not be. Common examples of incorrect claiming of GST include:
Credit card charges;
Bank fees;
Interest;
Wages; and
Private expenditure.
3. Failing to account for GST on the sale of assets
The sale of assets used in a taxable activity also triggers a GST liability. These are often overlooked as they are not sales of products or services. Note that a sale of land or involving an interest in land will generally be zero-rated.
4. Transactions between associated persons
The time of supply for transactions between associated persons may differ from the general rule and are, for example, when:
the goods are to be removed, if the goods are to be removed;
the goods are made available to the recipient, if the goods are not to be removed; and
services are performed, if the supply is made in respect of services.
If, however, an invoice is issued to or payment made by the “associated person” before one of the above time- of-supply rules, the general time-of-supply rules apply.
Subsection 10(3) provides that the value of a supply between associated persons is deemed to be market value if the consideration is nil or below market value.
There are several exceptions to this, most notably when the recipient acquires the supply for the principal purpose of making taxable supplies.
The rules for correcting GST errors
1. Minor errors
Errors may be corrected in the next taxable period when:
The errors are minor;
The errors were caused by a clear mistake, simple oversight or mistaken understanding; and
The total discrepancy in the assessment caused by the error is $1,000 or less.
You must keep records of the:
GST return period the error occurred in;
GST amount involved;
Type of error; and
GST return period you made the correction in.
2. Non-minor errors
The returns will need to be revised. Generally, this will require correspondence or disclosure to Inland Revenue. If, however, the error is discovered before the end of the due date for filing, errors can be corrected in myIR. When writing to Inland Revenue you will need to provide the:
GST taxable period the error occurred in;
GST amount involved and what the amended figures should be; and
Type of error and why the change is needed.
If Inland Revenue agrees, the original GST assessment will be revised, and a notice of assessment will be sent to you.
3. Overlooked input credits
These may be claimed in a subsequent return period, provided the claim is made within two years of first of the due date for the GST return in which the registered person could have made a valid input claim.
Director
Tax Central Ltd
027 244-5365
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