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Penalties and interest: Shortfall penalties

What are shortfall penalties?

Shortfall penalties apply to most taxes and duties, except child support repayments by liable parents.

A shortfall penalty is one applied as a percentage of a tax shortfall (a deficit or understatement of tax), resulting from certain actions on the part of a taxpayer. The law divides these actions into five categories of fault or breach, with a specified penalty rate for each category.

If the breach is ... then the standard penalty (% of tax shortfall) is ...
lack of reasonable care 20%
unacceptable tax position 20%
gross carelessness 40%
abusive tax position 100%
evasion 150%

The penalty increases in proportion to the seriousness of the breach.

Read more information on shortfall penalties or see Part 8 of the booklet Taxpayer obligations, interest and penalties (IR240).