IRD not liable for amending previous advice to taxpayers
Inland Revenue recently finalised its position on advice it gives to taxpayers that transpires to be incorrect.
Inland Revenue regularly provides advice to help taxpayers comply with the law. While our tax law is set by Parliament and not Inland Revenue, it is generally considered that taxpayers should be able to rely this advice.
With the exception of binding rulings Inland Revenue is not bound by the advice it gives. This means Inland Revenue has the flexibility to adjust its thinking to better reflect what it believes is the correct tax treatment.
Where the commissioner determines that its previous advice is incorrect any assessments made can be corrected. This may occur where a court decision clarifies the law, an error is discovered or the commissioner simply reconsiders her approach. Where a formal agreement has been reached or a return is too old to amend the commissioner will not correct the past.
Where a change in advice creates a favourable outcome for the taxpayer the commissioner will consider on a case-by- case basis whether an amendment is appropriate. The factors considered include the taxpayer's reliance on Inland Revenue guidance, the length of time since the position was taken, resources required to make the amendment and whether the taxpayer has provided sufficient background information with their amendment request.
Where a change in view creates an unfavourable position for the taxpayer the commissioner will generally apply the new position prospectively. In exceptional cases immediate or retrospective application may be applied once consideration is given to the revenue at stake, the number of taxpayers affected and the impact on taxpayer compliance.
The commissioner is sympathetic in such situations and the taxpayer will generally not be liable for interest or shortfall penalties on the unpaid tax. Liability for penalties and interest will depend on the taxpayer's circumstances.
If absolute certainty is required the only option is to obtain a binding ruling.
Greg Harris is a specialist tax partner in the Hamilton office of Deloitte.