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Tax refunds – how long should you wait?

The Federal Court in Australia has ruled the requirement for the Australian Tax Office to pay out GST refunds “within a reasonable period” did not allow them to withhold payment until they had completed an investigation into the accuracy of the refund claims. This was so even though the ATO had concerns about the veracity of the refund claims. See Multiflex Pty Ltd v FC of T 2011 ATC 20-284.

Compare that to the New Zealand position. Our GST legislation has a 15 working day time limit for the IRD to pay GST refunds unless the Department decides it wants to investigate the taxpayer’s return. As a result of our Supreme Court’s decision in Contract Pacific Limited V CIR (2011) 25 NZTC 20-006 the IRD effectively can now withhold GST refunds indefinitely if they decide to investigate the taxpayer’s return. There is nothing in our legislation requiring the IRD to have any basis for wanting to investigate a return before they can withhold a GST refund and the effect of the Court’s decision is that once the IRD has given the required notice of its investigation there are no time limits imposed on how that investigation is conducted.

These are two starkly contrasting approaches to an important aspect of public administration.

I’m not convinced having a tax administration with effectively an unshackled entitlement to withhold payment of taxpayers’ refunds reflects well on New Zealand’s overall attitude to taxpayer rights. This is an area of the GST law which needs to be reviewed in my opinion.

Iain

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