Tax guide's advice lays trap on GST

A change in the Inland Revenue's guide for individual income taxpayers could lead to some people underestimating the tax they owe and having to pay up later - even if they have done exactly what the IRD says.

It affects independent contractors who are registered for GST.

Their incomes may include payments that include GST.

The guide tells the contractors to enter the GST-exclusive amount at question 12 of the IR3 tax return, which records income, but also to include the GST at question 26, which relates to deductible expenses.

This appears to allow people to deduct the GST twice, and is a reversal of the instruction in last year's guide, which was to show the gross withholding payments (including the GST) as income and deduct the GST later.

Accountants warn that a defence of following IRD instructions does not get a taxpayer off the hook if what the department says is wrong.

The best anyone caught by the change can expect is to escape interest and any other penalties.

Inland Revenue was unable to cast any light on the matter yesterday.

Tax accountants have been told that this week, they probably won't be able to contact IRD people with whom they usually deal, as senior staff have been called in to help overstretched call centres before the July 7 deadline for filing income tax returns.