Goods and Services Tax Act 1985

Returns and payment of tax - Calculation of tax payable: deductions, apportionment, other adjustments

20B: Allocation of taxable supplies following investigation by Commissioner

You could also call this:

"What happens when the tax office checks and finds mistakes in a business's tax returns"

Illustration for Goods and Services Tax Act 1985

When the Commissioner investigates a registered person's tax, they might find a discrepancy. This means the person's taxable supplies were understated or overstated for a certain period. You need to know what this period is called - it's a specified period, which is more than one taxable period.

If the Commissioner finds a discrepancy, they will work out how much tax is owed. They call this the tax discrepancy, and it's a fraction of the understated or overstated taxable supplies. The Commissioner will then decide how to allocate the discrepancy over the specified period.

The Commissioner can allocate the discrepancy in different ways. They might spread it evenly over the whole specified period, or just over the time when the person was carrying on their taxable activity. You can also ask the Commissioner to allocate the discrepancy in a different way if you think that's more appropriate.

If a discrepancy is found, the tax discrepancy will be treated as output tax or input tax for the relevant taxable period. This is for the purposes of section 20, which is another part of the law. The Commissioner's decision about how to allocate the discrepancy will affect how much tax you owe.

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This page was last updated on 18 July 2025

View the original legislation for this page at https://legislation.govt.nz/act/public/1986/0120/latest/link.aspx?id=DLM83876.

Topics:

Money and consumer rights > Taxes

20A: Goods and services tax incurred relating to determination of liability to tax, or

"Claiming expenses when working out your goods and services tax"

20C: Goods and services tax incurred in making certain supplies of financial services, or

"Tax deductions for businesses that supply financial services to others"

Part 3Returns and payment of tax
Calculation of tax payable: deductions, apportionment, other adjustments

20BAllocation of taxable supplies following investigation by Commissioner

For the purposes of this section—
discrepancy means any understatement or overstatement of the taxable supplies made or received by a registered person calculated or otherwise ascertained in respect of any specified period
specified period means any period, being a period that extends over more than a single taxable period, to which a discrepancy relates
tax discrepancy, in relation to a discrepancy, means an amount equal to the tax fraction (being the tax fraction applicable to the taxable period, or any part of a taxable period, in relation to which the discrepancy has been deemed to have occurred) of the amount of the taxable supplies made or received by a registered person that have been understated or overstated.
For the purposes of this Act, in any case where, upon investigation by the Commissioner of the liability of a registered person for tax, the Commissioner has calculated or otherwise ascertained a discrepancy in relation to any specified period then,—
subject to paragraphs (b) and (c), the amount of the discrepancy shall be deemed to be taxable supplies made or received (as the case may be) by the registered person at a uniform daily rate throughout that specified period, and those taxable supplies shall be deemed to have been so made or received by the registered person in the taxable periods, or parts thereof, included in the specified period:
subject to paragraph (c), where the Commissioner is satisfied that the registered person did not carry on the taxable activity for any part of any specified period, the amount of the discrepancy shall be deemed to be taxable supplies made or received (as the case may be) by the registered person at a uniform daily rate throughout the part of the specified period in which the taxable activity was carried on, and those taxable supplies shall be deemed to be so made or received by the registered person in the taxable periods, or parts thereof, in which the taxable activity was carried on during the specified period:
where the registered person satisfies the Commissioner that it would be appropriate for the amount of the discrepancy to be allocated on a basis otherwise than in accordance with paragraph (a) or paragraph (b), the amount of the discrepancy shall be allocated on that basis, and the amount so allocated shall be deemed to be taxable supplies made or received (as the case may be) by the registered person in the taxable periods, or parts thereof, to which the discrepancy has been so allocated.

For the purposes of section 20, where a discrepancy has been deemed pursuant to this section to be taxable supplies made or received by a registered person in respect of any taxable period or any part of a taxable period, the tax discrepancy calculated in respect of the discrepancy shall be deemed to be output tax or, as the case may be, input tax in respect of that taxable period or part of a taxable period.

Notes

Section 20B: inserted, on 22 March 1989 (applying to any assessment issued on or after 22 March 1989), by section 7(1) of the Goods and Services Tax Amendment Act 1989 (1989 No 8).