Shortfall penalty amounts may be reduced if you:
- have a past record of good behaviour
- let us know something is wrong before or during an audit of your tax records.
Shortfall penalties may be cut in half if you have not had to pay a shortfall penalty for the same tax type within the last 4 years. If this applies to PAYE, FBT, GST or RWT, your penalty will be reduced if you have not had to pay a shortfall penalty within the last 2 years.
We can only reduce a penalty for the same shortfall once.
Lowering penalties with voluntary disclosure
We can lower your shortfall penalty if you make a full voluntary disclosure either:
- before you get the first notice of a pending tax audit or investigation
- after the first notice but before we start the audit or investigation.
Generally, we will write to you, your business or tax advisor to let you know of an audit, but we may verbally inform you.
It’s a good idea to tell us of a shortfall as soon as you can. Telling us early may lower your penalty.
| Time of voluntary disclosure | How much we may lower the penalty |
|---|---|
| During a registration check or unannounced visit by us | 40% |
| After first notification, but before the tax audit or investigation starts | 40% |
| Before first notice of a pending tax audit or investigation | 75–100% |
| During an audit where you tell us there is an issue with another tax type | 75–100% for the other tax type if we did not tell you it would be audited. |
You can make a disclosure to support your interpretation or the tax position you took when you filed your tax return.
Raising shortfall penalties
We can raise a shortfall penalty amount by 25% if you have obstructed us by:
- refusing reasonable access to your business premises
- destroying relevant records
- lying and falsifying details
- deliberately delaying to frustrate enquiries.
There is also a criminal penalty for obstruction.
Temporary shortfall penalties
We can lower a shortfall penalty by 75% if you have reversed or corrected the shortfall. We call this a reduced penalty for temporary shortfall. Any reverse or corrected shortfall must be permanent.
You do not have to have filed a return showing the reversal before notification of an audit. We will need to know that there would have been a reversal in the shortfall if you had filed the return.
You’ll need to make sure you reverse or correct your shortfall:
- before the end of the 4 year period beginning the day after the you took the tax position
- by paying or returning the correct total amount of tax for the periods involved.
However, if the shortfall appears to be part of an arrangement it may not be treated as a temporary shortfall.