The tax rules encourage voluntary compliance by clearly setting out your obligations and by applying standard penalties and interest for non-compliance.
The IRD have the power to impose penalties in the following circumstances:
- The late filing of an income tax return (ie: for a normal taxpayer a tax return filed after 31 March the following year) will incur a late filing penalty, which will be:
- $50 for taxpayers with net income below $100,000
- $250 for taxpayers with net income between $100,000 and $1 million; and
- $500 for taxpayers with net income above $1 million.
- There is a $250 penalty for filing an employer monthly schedule late.
- There is a $250 penalty for filing a GST return late (invoice or hybrid accounting basis) and $50 if you are on payments basis at the return due date.
- Late payment penalties will apply when taxes are not paid on time. This penalty will be calculated as follows: Compliant taxpayers will generally be warned prior to the first time any late payment penalty is imposed.
Initial late payment penalty: 1% of unpaid tax
After 7 days: 4% of unpaid tax
Monthly incremental penalties: 1% of unpaid tax
- Shortfall tax penalties may apply if you take a tax position (i.e. the calculation of the tax to be paid) is less than should have been paid (i.e. the IRD determines that more tax should have been calculated thus resulting in a tax shortfall). These shortfall penalties range from 20% to 150% of the shortfall of tax depending on the nature of the offence.
A penalty may be reduced by up to 100% if disclosure is made to IRD before an audit, by 40% if disclosure is made before the first meeting with IRD, or by 75% if the shortfall is temporary.
- Use of money interest is generally paid by IRD on overpayments of tax and is charged by IRD on underpayments of tax. The rates (from 8 May 2015) are:
- 9.21% on underpayments of tax (deductible)
- 2.63% on overpayments of tax (assessable)
For more details read the IRD Taxpayer Obligations, Interest & Penalties