Contingent assets and liabilities are recorded in the Schedule of Non-departmental Contingent Assets and Contingent Liabilities.
Contingent assets
Disputes–non-assessed
Contingent assets arise as part of the tax dispute process, for example when IR has advised a customer of a proposed adjustment to their tax assessment through a notice of proposed adjustment. At this point, IR has not issued an amended assessment and no revenue has been recognised so these adjustments are recorded in the Schedule of Non-departmental Contingent Assets and Contingent Liabilities as disputes–non-assessed. The customer has the right to dispute this adjustment and a disputes resolution process is entered into. IR records a contingent asset based on the cash likely to be received from the disputes process, based on experience and similar prior cases, net of losses carried forward.
Contingent assets can also arise where the customer has not filed an assessment, but IR believes they are liable for tax. In this situation, IR will issue an assessment. Where the customer chooses to dispute the IR-initiated assessment, the assessment is not recognised as revenue and a contingent asset is recorded in the Schedule of Non-departmental Contingent Assets and Contingent Liabilities. The value of the asset is based on the cash likely to be received from the disputes process, based on experience and similar prior cases, net of losses carried forward.
Contingent liabilities
Legal proceedings and disputes–assessed
If a legal case is still not resolved at the end of the disputes process, IR will issue an amended assessment to the customer and recognise revenue and a contingent liability. The customer is then able to file proceedings with the Taxation Review Authority or the High Court disputing the assessment.
Unclaimed monies
Unclaimed monies are repaid to the entitled owner on proof of identity. Based on trends from prior years, the estimated likely amount of unclaimed monies that will be paid is recorded as a liability in the Schedule of Non-departmental Liabilities and the remainder is recorded as a contingent liability in the Schedule of Non-departmental Contingent Assets and Contingent Liabilities.