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SPS 07/03 - Requests to amend assessments (May 07)

Withdrawn

This statement has been withdrawn and is provided for historical purposes only.

Introduction 

  1. This Standard Practice Statement (SPS) sets out Inland Revenue's practice for exercising the Commissioner's discretion to amend assessments to ensure their correctness. 

Application

  1. This SPS applies from 17 May 2007.
  2. This SPS applies to the exercise of the Commissioner's discretion under section 113 of the Tax Administration Act 1994 to amend assessments to ensure their correctness. It replaces all previous policies and standard practices regarding the exercise of the discretion under section 113, including SPS INV-510 Requests to Amend Assessments originally published in Tax Information Bulletin Vol 14, No 8 (August 2002).
  3. Section 113 does not apply to the exercise of the Commissioner's discretion to amend assessments to ensure their correctness under section 82(3) of the Estate and Gift Duties Act 1968 and section 12G(2) of the Gaming Duties Act 1971. However, in exercising the discretion arising under either of those provisions, the Commissioner will, so far as permitted, apply similar principles to those set out in this SPS.
  4. Please note that SPS INV-510 included a discussion on the Commissioner's discretion in amending GST assessments under section 27(2) of the Goods and Services Tax Act 1985 ("the GST Act"). However, section 27(2) was repealed with application for GST return periods beginning on or after 1 April 2005 , and the Commissioner's authority to amend GST assessments now arises pursuant to section 113.
  5. This SPS should be read in conjunction with SPS INV-490 GST returns – correcting minor errors (and clarification) , SPS INV-251 Voluntary Disclosures and any SPSs subsequently issued in replacement.
  6. Unless specified otherwise, all legislative references in this SPS refer to the Tax Administration Act 1994 ("the TAA").

Legislation

  1. The relevant legislative provisions are:
     
    1. sections 6, 6A, 14, 15B, 89C, 89N, 107A, 108, 108A, 113, 138E, 141FB, 141G and 141KB,
    2. section MD 1(1) of the Income Tax Act 1994 ("ITA 1994"),
    3. section MD1(1) of the Income Tax Act 2004 ("ITA 2004"), and
    4. sections 19C(8), 20(5), 45(1) and (3) and 46 of the GST Act.

Summary

  1. Section 113 gives the Commissioner the discretion to amend assessments to ensure their correctness when they contain genuine errors, or following the application of the disputes resolution process in Part IVA.
  2. Section 113 is viewed in the context of taxpayers' obligations to make correct assessments, and the other duties arising under section 15B. The Commissioner has an obligation to protect the integrity of the tax system including applying the tax laws fairly, impartially and according to the law.
  3. Section 113 operates alongside, but is not part of the disputes resolution process provisions that set out the procedures for resolving disputes between Inland Revenue and taxpayers. The Commissioner will not amend assessments while any item of those assessments remains the subject of current disputes under Part IVA. However, assessments can be amended consequentially following completion of the disputes resolution process or to reflect agreed adjustments.
  4. When the Commissioner considers that assessments are incorrect (and there is no dispute), the Commissioner can exercise the discretion to amend assessments to correct the genuine errors.
  5. This SPS is therefore generally directed at those instances where taxpayers request amendments to assessments (amendment requests), including by making voluntary disclosures, where genuine errors have been made. This SPS also considers the situation where genuine errors are discovered in the course of an investigation. The Commissioner will amend assessments, on a case-by-case basis, when satisfied that genuine errors were made and that none of the limitations set out in paragraphs 49 to 62 of this SPS apply.

Discussion

  1. The Commissioner acknowledges that correcting tax errors is an integral part of tax administration. At times, the Commissioner will correct incorrect tax positions to give effect to amendment requests, voluntary disclosures or Inland Revenue investigations. The Commissioner will make any such amendments irrespective of whether they increase or reduce the initial assessments.
  2. Pursuant to section 113, the Commissioner may amend assessments to ensure their correctness notwithstanding that taxpayers have not issued notices of proposed adjustment ("NOPAs") pursuant to section 89D in respect of the requested amendments. However, taxpayers seeking to amend incorrect tax positions that relate to:
     
    1. non-genuine errors including matters of regretted choice, or
    2. matters of disputed statutory interpretation,
       
  3. must issue NOPAs if within the applicable response period and may make voluntary disclosures when a tax shortfall results.
     
  4. If the Commissioner has raised assessments pursuant to section 106(1) (commonly known as default assessments) and the taxpayers subsequently file tax returns in respect of those default assessments outside the relevant response periods, the Commissioner may treat the tax returns as amendment requests. The Commissioner will generally amend the assessments pursuant to section 113 after confirming that the tax returns contain correct tax positions. However, if taxpayers are within the relevant response periods they should consider issuing NOPAs with their tax returns pursuant to section 89D(1) in order to preserve their disputes rights against the possibility that the Commissioner declines the exercise of the section 113 discretion.
  5. Section 113 contains a broad discretion allowing the Commissioner to amend assessments to ensure their correctness, but provides little guidance about how the Commissioner should exercise this discretion in practice. Accordingly, it is necessary to look at the legislative scheme, context and the relevant case law.
  6. Section 113 reads:
     
    1. Subject to section 89N, the Commissioner may from time to time, and at any time, amend an assessment as the Commissioner thinks necessary in order to ensure its correctness, notwithstanding that tax already assessed may have been paid.
    2. If any such amendment has the effect of imposing any fresh liability or increasing any existing liability, notice of it shall be given by the Commissioner to the taxpayer affected.

Considering amendment requests

  1. Taxpayers may make amendment requests pursuant to section 113 irrespective of whether disputes have been initiated in respect of other issues relating to the assessments.
  2. A threshold issue is whether the Commissioner must consider amendment requests from taxpayers after they are identified. As a matter of law, the Commissioner cannot be compelled to either investigate claims that assessments are in error or subsequently to amend the assessments. Please see Commonwealth Agricultural Services Engineers Ltd (In Liquidation) v CIR [1926] 38 CLR 289, CIR v Wilson (1996) 17 NZTC 12,512 and Lawton v CIR (2003) 21 NZTC 18,042.
  3. Where it is decided to devote resources to verify genuine errors and a view can reasonably be formed on the basis of the amendment request's merits, the Commissioner will make appropriate adjustments to assessments subject to the principles set out in this SPS, in the spirit of promoting voluntary compliance by taxpayers and to protect the "integrity of the tax system" under section 6(1).
  4. When the Commissioner is not satisfied that assessments contain genuine errors, the Commissioner will not and cannot be compelled to amend the assessments. Please see Wood v CIR (1999) 19 NZTC 15,255.

"Care and management" considerations

  1. The discretion to amend assessments under section 113 enables the Commissioner to act fairly towards all taxpayers including those who get their tax returns or assessments correct the first time and those who have made genuine errors. This also promotes integrity in the administration of the tax system.
  2. It is important, however, to recognise that Inland Revenue does not have unlimited resources to undertake lengthy verification processes to determine whether assessments should be amended. When meeting the obligation to collect over time the highest net revenue that is practicable within the law under section 6A(3), the Commissioner must consider:
     
    1. the resources available to the Commissioner,
    2. promoting compliance, especially voluntary compliance, by all taxpayers, and
    3. taxpayers' compliance costs.
       
  3. Accordingly, it is consistent with the obligation under section 6A(3) for the Commissioner to limit the amount of time and other resources that will be spent investigating amendment requests. Therefore, at times not all requested amendments will necessarily be corrected. Ensuring a balance between time spent considering amendment requests and other activities is also consistent with the obligation to protect the integrity of the tax system under section 6(1). The principles set out below reflect that balance.
  4. The Commissioner will be reluctant to consider amendment requests that would require the application of disproportionate amounts of departmental resources (that is, excessive resources when compared to the amount of tax at stake). This is not to say that the Commissioner will only use minimal resources to determine amendment requests or never consider complex amendment requests. The extent and relevance of taxpayers' disclosures and the amount of tax at stake in respect of the amendment requests will indicate the amount of the Commissioner's resources needed to consider the requests. Ultimately, the allocation of resources will be determined on a case-by-case basis.
  5. To assist in the consideration of any amendment requests, taxpayers should provide sufficient relevant information with their requests to ensure that the facts and tax laws relating to the errors are clear and unambiguous. Determining unresolved factual or legal issues may require disproportionate amounts of departmental resources. Therefore, the amendment request might not be considered, or later declined notwithstanding that high dollar amounts are involved.

Genuine errors

  1. In this SPS, the term "genuine errors" is used to mean incorrect tax positions taken in assessments resulting in a tax liability being either overstated or understated. However, if taxpayers choose to take particular tax positions under tax laws where legitimate alternatives are available and later regret that choice, no error has occurred (please see paragraphs 37 and 38 ). This is because the Commissioner does not consider it appropriate to devote resources to correcting optional positions if the preferred positions could have been taken when the taxpayers made the original self-assessments by filing the tax returns. Arguably, to do so would not promote the integrity of the tax system pursuant to section 6(1).
  2. The Commissioner accepts that where a taxpayer has taken an incorrect tax position and the Commissioner amends the taxpayer's assessment following an investigation, other taxpayers' tax positions may also be incorrect as a result of the first-mentioned taxpayer's incorrect tax position. These will also be regarded as genuine errors. The Commissioner will need to amend the other taxpayer's assessment under section 113 upon the consequential error being identified (subject to other statutory requirements). This is because section 89C(k) permits the Commissioner to amend assessments in such cases without first issuing notices of proposed adjustment.

Principles

  1. In summary, the Commissioner will amend assessments to ensure their correctness, subject to resources being available and in accordance with the following principles:
     
    1. The relevant case law indicates that the Commissioner is not required to, either consider whether genuine errors have occurred, or subsequently to amend the assessments. That is, the Commissioner may not consider all amendment requests once they are identified.
    2. The Commissioner must take into account all relevant factors when considering amendment requests. (Please see paragraphs 23 to 27 of this SPS for a discussion of the care and management considerations). Once the amendment requests are identified, the Commissioner will initially examine them to ascertain all the relevant factors that may affect the decision to investigate claims that assessments are in error and to amend the assessments. For example, the length of time that has passed since the errors were made may be a relevant factor, as it may become more difficult to independently verify the matters included in the taxpayers' requests. However, this will not necessarily determine whether or not the Commissioner will amend the assessments.
    3. The facts and tax laws relating to the genuine errors must be clear and unambiguous. The Commissioner will not contemplate the use of section 113 in respect of complex unresolved issues (for example, issues that are currently being heard by a hearing authority or covered only by proposed new legislation, which is yet to be passed by Parliament).
    4. When statutory interpretation is at issue (that is, due to disagreement about the meaning of the law), the Commissioner does not consider it appropriate to amend assessments. Disputed statutory interpretation should properly be considered in the disputes resolution process.
    5. When amending assessments under section 113, the Commissioner must be satisfied that the amendments will ensure the correctness of those assessments taking into account the relevant legislative scheme and case law.
    6. The onus is on taxpayers to provide all relevant information with amendment requests. This will enable the Commissioner to verify the genuine error by considering the merits of the amendment request.
    7. Amendment requests that would require disproportionate amounts of the Commissioner's resources to resolve will not generally be accepted. If the resources needed to amend assessments considerably exceed the monetary value of the requested amendments, the Commissioner will not usually amend the assessments. Similarly, amendment requests that relate to very small amounts of tax, or are vexatious or fraudulent in nature given the resources likely to be required, will not usually be considered.
    8. If the Commissioner is persuaded that the taxpayers made the genuine errors as a direct result of relying on advice given to them by Inland Revenue officers, favourable consideration will be given to the exercise of the discretion. Taxpayers should, however, note their obligation to take care in interpreting advice, especially in respect of statements not directed at them.
    9. Where taxpayers request the Commissioner to change assessments from one valid option to another, there is no genuine error to correct. This is a matter of regretted choice, such as where taxpayers choose one of several legitimate options for the calculation of a tax liability and later request that option be changed (please see paragraphs 37 and 38 ). If, however, the taxpayers can show that their tax returns simply erroneously recorded their original intended choice under tax laws, the Commissioner may further consider the amendment requests.
    10. The Commissioner will not amend assessments while any item of those assessments remains the subject of a current dispute under Part IVA.
    11. Generally, incorrect tax positions arising from arithmetical, transposition and other types of obvious errors that are clear and easily verified by Inland Revenue will be corrected subject to the limitations set out in this SPS.
    12. At times, an investigation commenced by Inland Revenue may indicate that following proposed or agreed adjustments there should be consequential changes made to the taxpayers' other tax periods (or to other taxpayers' tax periods as a result of the relevant transactions). In this circumstance, the Commissioner will also make consequential amendments pursuant to section 113 after the conclusion of the disputes resolution process and subject to taxpayers not commencing challenge proceedings in a hearing authority to:
       
      1. the taxpayers' other incorrect tax periods pursuant to section 89C(c), and
      2. other taxpayers' incorrect tax positions that are taken as a result of the first-mentioned taxpayers' incorrect tax positions, in accordance with section 89C(k).
         
    13. Although the Commissioner does not have an absolute obligation to amend assessments that contain genuine errors, the Commissioner will do so after verifying the errors, unless overriding policy grounds exist that would lead to inconsistency with the Commissioner's obligations under sections 6 and 6A.
    14. Amendments will be made unless they are subject to any time limitations imposed pursuant to the Inland Revenue Acts referred to in this SPS.

Standard Practice

  1. The following standard practice has been developed from the principles set out in paragraph 30 .

Taxpayers' amendment requests

  1. Taxpayers or their agents making amendment requests must supply the Commissioner with all relevant information to substantiate the claim. The amendment request and this information must be provided in writing and should include:
     
    1. the tax types and periods containing the errors,
    2. the amount of tax in error,
    3. a description of the errors including the background circumstances and the reasons for their occurrence,
    4. the nature of the errors, including any relevant tax laws,
    5. how and why the errors were identified,
    6. where relevant details of any incorrect advice given directly to the taxpayers by Inland Revenue and how the taxpayers relied on that advice,
    7. the action required to ensure correctness, and
    8. all other relevant documents and records supporting the amendment requests.

Amended tax returns

  1. Taxpayers cannot, by law, correct errors in their self-assessments by simply filing "amended tax returns". However, amended tax calculations (for example, in a copy of an amended tax return) with supporting information will be considered pursuant to section 113.

Considering amendment requests

  1. The Commissioner must first determine the extent to which the amendment requests will be considered. Generally, the Commissioner will consider amendment requests if the information supplied is clear and the principles set out in paragraph 30 are satisfied.
  2. When considering amendment requests, the Commissioner must take into account all relevant factors and merits on a case-by-case basis. These may include:
     
    1. the reasons for the errors,
    2. the amount of time which has passed since the errors were made,
    3. the resources required or difficulty faced by the Commissioner in verifying the errors, and
    4. the relative importance or amount of the amendments sought.
       
    If the amendment requests need further clarification, the Commissioner may either decline to consider them or ask for additional information from the taxpayers or their agents to verify the amendment requests.
     
  3. In relation to arithmetical or transposition errors that are clear and result in incorrect tax positions, except for the application of the statutory time limitations, the length of time that has passed since the errors were made will not be a determining factor for exercising the discretion under section 113.
  4. If the taxpayers show that their tax returns simply incorrectly recorded their decisions under tax laws, the Commissioner would generally amend the assessments. For example, the taxpayer makes a transposition error in their 2006 income tax return after documenting a decision to allocate 40% of research and development (R & D) expenditure to their 2006 income year pursuant to section EJ 21 of the ITA 2004. The final deduction claimed did not reflect the 40% intended to be claimed. Thus, the tax position taken was incorrect. The Commissioner would amend the assessment under section 113 to correct the transposition error if the taxpayer provides accounting or business records that substantiate the taxpayer's intention to allocate 40% of the deduction to the 2006 tax year.
  5. However, the Commissioner cannot exercise the discretion under section 113 if the amendment requests involve matters of regretted choice. For example, as in paragraph 37 , a taxpayer seeks to deduct R & D expenditure incurred in the 2006 tax year pursuant to section DB 26 of the ITA 2004. The taxpayer has elected to allocate 40% of the allowable deduction in their 2006 income tax return pursuant to section EJ 21 of the ITA 2004. They have documented their decision and a notice of assessment has been issued reflecting that decision. The taxpayer later decides that they would like to allocate 60% of the allowable deduction to the 2006 tax year and requests that the assessment be amended pursuant to section 113. In this circumstance, the Commissioner cannot amend the taxpayer's request because it involves a matter of regretted choice and is not a genuine error.

Amending assessments

  1. After considering amendment requests, the Commissioner may amend assessments to ensure their correctness provided the following criteria are met:
     
    1. the amendment requests are clear, that is, the errors are identified clearly, both factually and legally,
    2. the taxpayers have provided all relevant information to ensure that the Commissioner can make correct assessments,
    3. the Commissioner has verified the errors as genuine,
    4. the amendments are to be made within the relevant time limits (please see paragraphs 55 to 62 ), and
    5. none of the other limitations apply (please see paragraphs to 49 to 54 ).
       
  2. If, after considering all the relevant information and submissions, the Commissioner is not satisfied that genuine errors were made, the Commissioner cannot amend the assessments. For instance, the facts may indicate that the taxpayers adopted particular legitimate options or are relying on legal interpretations with which the Commissioner may disagree.
  3. Where such decisions are made, the Commissioner will advise the taxpayers or their agents of the decisions in writing and the reasons for the decisions.
  4. When amending assessments the Commissioner will ensure that all consequential adjustments to other tax types and/or periods (and taxpayers' assessments) are included once they are confirmed by the affected taxpayers. However, in some cases the Commissioner may require further information from the taxpayers before making such consequential amendments.
  5. Where the Commissioner is already investigating the tax type and period to which the amendment requests relate, the amendment requests will be considered as part of that investigation.

Investigations and consequential amendments

  1. Inland Revenue undertakes various types of investigation activities. For the purpose of this SPS, an investigation means any examination of taxpayers' financial affairs to verify that they have paid the correct amount of tax and complied with their tax obligations as required by the law.
  2. Irrespective of whether there is a current dispute, if the period and tax type relating to the amendment requests are already under investigation, the Commissioner will make any appropriate consequential amendments. That is, if the Commissioner is already devoting resources to verify the correctness of assessments, all reasonable consequential effects of the investigation will be considered (including the amendment requests) as part of that process.
  3. The Commissioner may make any consequential adjustments (that is, not requested by the taxpayers under investigation) to the taxpayers' other assessments or to other taxpayers affected by adjustments resulting from the investigation. The consequential amendments could relate to the same or different tax types. For example, a taxpayer mistakenly claims incorrect GST input tax deductions for an exempt supply. This is discovered after a routine Inland Revenue investigation. The Commissioner amends the GST assessment following agreement by the taxpayer and also makes a consequential amendment to the taxpayer's corresponding income tax assessment to reflect the disallowed expenditure.
  4. If, after following the standard practice set out in this SPS, the Commissioner agrees with the amendment requests, then subject to the limitations set out below, the amendments will be incorporated into the amended assessments arising from the investigation. The Commissioner cannot amend the assessments to reflect the amendment requests before finalising the position in relation to the other issues arising from the investigation. The amendments will be treated the same as any other agreed adjustments arising out of the investigation.
  5. Finally, please see the comments in paragraph 52 in relation to the effect of a decision by Inland Revenue's Adjudications Unit (an adjudication decision) arising in the course of a dispute.

Limitations on the exercise of the discretion to amend assessments

  1. In accordance with the obligations under sections 6 and 6A and the limitations set out in this SPS, the Commissioner will correct genuine errors once verified by Inland Revenue officers.
  2. The following may act as general limitations on the exercise of the Commissioner's discretion to amend assessments.

Amendment requests following court and adjudication decisions

  1. When taxpayers request assessment amendments to reflect court decisions affecting themselves or other taxpayers, the Commissioner will not necessarily amend the assessments. However, when exercising the discretion under section 113, the Commissioner will consider all relevant factors including whether:
     
    1. the taxpayers have consistently asserted that they are entitled to take tax positions reflecting the court decisions,
    2. the taxpayers have been associated with claims or actions against Inland Revenue on issues relevant to the requests,
    3. Inland Revenue has advised the taxpayers that the outcome of a particular issue would apply to them, and
    4. Inland Revenue has previously advised the taxpayers directly in relation to particular matters and the taxpayers have acted on that advice, which has later proved to be incorrect.
       
  2. Where the Commissioner has issued assessments to taxpayers after commencing a dispute but prior to determination of the issue by adjudication, and the Adjudication Unit has subsequently reached conclusions on another period or periods, the Commissioner will apply those conclusions and amend any assessed periods where:
     
    1. the dispute is in relation to the same issue, and/or
    2. the Adjudication Unit has determined the issue in favour of the taxpayers.

    However, this approach is subject to no:
     
    1. material factual differences existing between the periods in question, and
    2. special circumstances existing such that an adjustment would be inconsistent with the Commissioner's obligations under sections 6 and 6A. For example, where the Adjudication Unit holds that the assessment should be increased but the Commissioner cannot refund the resulting overpaid income tax because of the time restriction arising from section MD 1(1) of the ITA 2004.

Amendment requests following a change in the Commissioner's practice

  1. Generally, the Commissioner will not amend assessments where taxpayers have made amendment requests because of a change in the Commissioner's practice in administering the tax laws. This is because the Commissioner does not usually backdate the application of changes in practice. However, where the Commissioner does backdate the change in practice in a concessionary way, the application of the new practice will be made clear to the taxpayers.

Current dispute

  1. When the amendment requests are the subject of a current dispute under Part IVA, the Commissioner will not amend the assessments unless they are to reflect agreed adjustments and there are no other disputed issues in the period to which the agreed adjustments relate.

Time limits on increasing assessments

  1. Further to the limitations set out above, the Commissioner cannot increase previously assessed amounts:
     
    1. Pursuant to section 108, in respect of income tax if four years have elapsed from the end of the tax year when the income tax returns were provided unless the Commissioner considers those tax returns:
       
      1. are fraudulent or misleading, or
      2. omit income for which tax returns must be provided:
         
        1. that is of a particular nature, or
        2. was derived from a particular source, and/or
           
    2. Pursuant to section 108A, in respect of GST if four years have elapsed from the end of the GST return period in which the GST returns were provided, unless the Commissioner considers that the taxpayers have knowingly or fraudulently failed to disclose all of the material facts needed to determine the amount of GST payable for a GST return period.

Time limits on income tax refunds

  1. Pursuant to section MD 1(1) of the ITA 1994 and the ITA 2004, the Commissioner cannot refund amounts of overpaid income tax including amounts arising from amendments made under section 113 in the following circumstances:
     
    1. For assessments relating to the 2004-2005 and later tax years, Inland Revenue cannot refund amounts of overpaid tax if four years have elapsed from the end of the tax year in which the taxpayers provided the tax returns. However, this four-year refund limitation period may be extended to eight years if the refunds arise as a result of:
       
      1. a "clear mistake or simple oversight" by the taxpayers, or
      2. the taxpayers' entitlement to a rebate of income tax under subpart KD of the ITA 2004,

      and Inland Revenue receives any refund request from or on behalf of the taxpayers before, or within four years following, the end of the initial four-year limitation period.
       
    2. For assessments relating to tax returns before the 2004-2005 tax year, Inland Revenue cannot refund amounts of overpaid tax if eight years have elapsed from the end of the income year in which the original assessments were made.

Time limits on GST refunds

  1. Pursuant to section 45(1) of the GST Act, the Commissioner cannot refund amounts of overpaid GST for taxable periods beginning on or after 1 April 2005 in the following circumstances:
     
    1. if the Commissioner is satisfied that the amounts of tax paid exceed the amounts properly payable and four years have elapsed from the end of the taxable periods to which the assessments relate.
    2. in respect of refunds pursuant to sections 19C(8), 20(5) or 46 of the GST Act, if the Commissioner is satisfied that the taxpayers did not receive refund amounts that they were clearly entitled to receive and four years have elapsed from the end of the year in which the refunds were made.
       
  2. However, pursuant to section 45(4), the Commissioner may refund GST overpayments within four years of the end of the initial four-year limitation period if:
     
    1. the GST overpayments arise from a "clear mistake or simple oversight" by the taxpayers, and
    2. the Commissioner:
       
      1. refunds the GST overpayment within four years of the end of the initial four-year limitation period, or
      2. receives refund requests from or on behalf of the taxpayers during the four-year limitation period referred to in paragraph 57(b) or within four years of the end of that period.
         
  3. For taxable periods beginning before 1 April 2005 , refunds for overpaid GST cannot be made if eight years have elapsed from the end of the taxable periods to which the assessments relate unless the taxpayers request the refunds in writing before the end of the eight-year period .

Amended assessments after expiry of the four-year time limit for increasing assessments

  1. When taxpayers request assessment reductions ("credit adjustments") after the four-year limitation period for increasing assessments has elapsed, the Commissioner in considering the amendment requests will incorporate any adjustments that would have definitely been made to increase the assessments ("debit adjustments") but for the application of the four-year time limit. This will ensure the correctness of the assessments.
  2. If the debit adjustments that the Commissioner would have made do not exceed the credit adjustments requested by the taxpayers, the Commissioner will reduce any credit adjustments by the amount of the debit adjustments.
  3. The Commissioner cannot increase assessments outside the four-year time limit through offsetting the debit adjustments that would have definitely been made with the credit adjustments requested by the taxpayers. However, if the Commissioner is not satisfied that amending the assessments will ensure their correctness they will not be amended as requested.

General

Fresh or increased liability

  1. Pursuant to section 113(2) if any assessment amendments impose fresh or increase existing liabilities the Commissioner will give written notice to the affected taxpayers.

Shortfall penalties

  1. Where amendment requests (for example, by way of voluntary disclosures) impose fresh liabilities or increase existing liabilities, taxpayers may also be liable to shortfall penalties.
  2. For further information about the assessment of shortfall penalties, please see the following current Interpretation Statements and any subsequently issued in replacement:
     
    1. Shortfall penalty for not taking reasonable care,
      (in Tax Information Bulletin Vol 17, No 9 (November 2005)),
    2. Shortfall penalty - unacceptable interpretation and unacceptable tax position,
      (in Tax Information Bulletin Vol l7, No 9 (November 2005)),
    3. Shortfall penalty for gross carelessness,
      (in Tax Information Bulletin Vol 16, No 8 (September 2004)),
    4. Shortfall penalty for taking an abusive tax position,
      (in Tax Information Bulletin Vol 18, No 1 (February 2006)), and
    5. Shortfall penalty for evasion,
      (in Tax Information Bulletin Vol 18, No 11 (December 2006)).
       
  3. Please also see SPS 06/01 Discretion to cancel or not assess shortfall penalties for taking an unacceptable tax position regarding the exercise of the Commissioner's discretion to not impose shortfall penalties for taking an unacceptable tax position and any SPS subsequently issued in replacement.
  4. Taxpayers that make amendment requests resulting in debit adjustments will be eligible for voluntary disclosure reductions of any applicable shortfall penalties if the amendment requests meet the requirements under section 141G. Please see SPS INV-251 Voluntary Disclosures and any SPS subsequently issued in replacement for further details on the reduction of shortfall penalties for voluntary disclosures.
  5. Furthermore, any applicable shortfall penalties will be further reduced by 50% for previous behaviour pursuant to section 141FB if the taxpayers are not:
     
    1. convicted of a disqualifying offence (please see section 141FB(3)), and/or
    2. liable for a disqualifying penalty (please see section 141FB(3)).
       
    Please see SPS 06/03 Reduction of shortfall penalties for previous behaviour and any SPS subsequently issued in replacement for further details.

No rights to challenge exercise of the discretion

  1. Please note that pursuant to section 138E(1)(e)(iv) taxpayers cannot challenge the exercise of the Commissioner's discretion under section 113 by commencing proceedings in a hearing authority. However, the exercise of this discretion may be subject to judicial review.

This Standard Practice Statement is signed on 17 May 2007

 

Graham Tubb

Group Tax Counsel