Correcting errors in a filed FBT return is not as simple as washing them through the fourth quarter attribution calculations. The fourth quarter FBT return true-up is just a true-up between FBT rates. Errors in the taxable value of benefits in earlier quarters is not technically part of this process. While these errors can be flushed through the true-up process at a practical level, you may actually just be hiding error corrections that are subject to specific rules in the tax legislation.
FBT return corrections under Section 113A
Under section 113A of the Tax Administration Act 1994, errors can be corrected in the next FBT return after the discovery of the error when:
- you have filed an FBT return that contains errors; and
- the errors were a “clear mistake, simple oversight, or mistaken understanding on your part”; and
- the total discrepancy in the amount assessed in aggregate is $500 or less.
This only be done in the next FBT return after you discover the error. If you find an error relating to the first quarter FBT return while preparing your second quarter FBT return, you can’t wait until the fourth quarter washup to correct it under Section 113A. If you make a Section 113A correction, Inland Revenue require you to document the details including:
- the return period the error occurred in
- the FBT amount involved
- the type of error
- the FBT return period the correction was made.
We suggest you review Inland Revenue’s Standard Practice Statement 07/03 – Requests to amend assessments (May 07) if you intend using Section 113.
FBT return corrections above the $500 threshold
Technically you will need to file a notice of proposed adjustment. Use of money interest and penalties may be applicable.
We recommend you deal with errors quickly. However, always speak to your tax adviser before contacting Inland Revenue as they will be able to give you practical guidance that will reduce exposures.
What happens when you are using FBT software
FBT software results in fewer errors. It is often implemented as part of wider FBT process improvement that involves better identification of fringe benefits each quarter, which is an area of high risk. FBT software has sense checks to prevent common errors before you file. However, FBT software also makes it easier to pick up prior period errors in Quarter 4 and to true them up as part of the attribution process. Contact us today to find out more about how FBT software can help you reduce FBT errors.