Penalties and interest: Shortfall penalties
What are shortfall penalties?
Shortfall penalties apply to most taxes and duties. The exceptions are student loan repayments and child support repayments by liable parents.
A shortfall penalty is one imposed 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 six categories of fault or breach, with a specified penalty rate for each category.
The six categories and the penalty based on percent of the tax shortfall are:
- lack of reasonable care - 20%
- unacceptable tax position - 20%
- gross carelessness - 40%
- adopting an abusive tax position - 100%
- evasion - 150%
- non-payment penalty - 10% every month the tax remains unpaid or not in an instalment arrangement, up to a maximum of 150%.
The penalty increases in proportion to the seriousness of the breach.
For more information on shortfall penalties, see Part 8 of the booklet Taxpayer obligations, interest and penalties (IR240).
Date published: 19 Feb 2009
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