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Inland Revenue

Tax Policy

PUBLISHED 7 March 2007

Law changes to relax tax penalties

A bill planned for introduction in May will relax a whole range of tax penalties and update the associated legislation, to encourage voluntary compliance, the Minister of Revenue announced today. The proposed legislation will include changes to tax shortfall penalties (including the penalty for taking an unacceptable tax position), the late payment penalty and the definition of "tax agent". For more information see the media statement.

Hon Peter Dunne
MP for Ohariu Belmont
Minister of Revenue
Associate Minister of Health

Media Statement

Law changes to relax tax penalties

Legislation planned for introduction in May will relax a whole range of tax penalties and update associated legislation, to encourage voluntary compliance, Revenue Minister Peter Dunne announced today.

"The idea behind the changes is to have tax penalties that reflect the seriousness of the offence, since people comply with the law more willingly when they see it as reasonable," Mr Dunne said.

"The current system of penalties does not always distinguish between people who try to do the right thing but fail, and people who have little regard for the law.

"There are also several areas in the law where the rules about what behaviour attracts a penalty could be clearer, more consistent and better targeted at making people want to comply with the law.

"One of the main changes to be introduced will reduce the number of penalties faced by people who have a tax shortfall if they tell Inland Revenue about it before being advised that they are to be audited.

"In that case, penalties will not be imposed on them for not having taken reasonable care or for having adopted an unacceptable tax position. That change will apply from the date of introduction of the bill.

"Other changes include updating the definition of "tax agent" to allow the Commissioner of Inland Revenue to exclude certain people from the definition in limited circumstances. That is expected to happen only rarely, and only when considered necessary to protect the integrity of the tax system.

"The new legislation will also clarify when a shortfall penalty for not taking reasonable care may be imposed on taxpayers who have used a tax agent, an area that is not black and white under current law.

"The scope of the penalty for having an unacceptable tax position will be narrowed, to apply only to income tax. That will relieve the problem of people being harshly penalised in relation to GST returns, which are often prepared without the help of a tax agent or benefit of an agent’s advice.

"First-time late payers will not automatically attract a penalty - instead they will be notified by Inland Revenue that they are late with their payment and be given time to pay the amount owing before a penalty is imposed.

"In a similar vein, the shortfall penalty for underpayments of PAYE will be graduated for employers who file an employer monthly schedule on time but do not pay the associated PAYE.

"The changes will be aimed at promoting voluntary compliance by recognising degrees of non-compliance, and making it easier for people to comply with the law," Mr Dunne said.


Ted Sheehan
Press secretary
Tel: 04 470 6985
Cell: 021 638 920