The IRD charge four majors types of penalties: Late Filing Penalty, Late Payment Penalty, Interest and Other Penalties. These can generally be applied to all tax types. I will be using an example of $100 of tax not filed and paid on time ends up being $424 after just 1 year.
Late Filing Penalty
$250 - PAYE tax return is not filed on or before the due date.
$250 – GST Return not filed on or before the due date. (hybrid or invoice basis)
$50 – GST Return not filed on or before the due date. ( payments basis)
$50 – Income tax Return (if taxable income under $100,000)
$250 – Income tax Return (if taxable income between $100,000 and $1 Million)
$500 – Income tax Return (if taxable income $1 Million and over)
Late Payment Penalty
The following penalties are together i.e. it is not a case of one or the other BUT they apply to the overdue amount as time passes.
- 1% of overdue amount - late payment penalty will be charged on the day after the due date
- 4% of overdue amount - penalty will be charged if there is still an amount of unpaid tax (including penalties) at the end of the 7th day from the due date.
- 1% of overdue amount - Every month the amount owing remains unpaid
- 10% of overdue amount - The non-payment penalty is 10% of the amount not paid.
- 10% of overdue amount - A further 10% is added each month the amount remains outstanding.
Example: $100 overdue will incur total penalty charges in one year of approximately: $142 + $250 penalty if not filed on time. That’s $392 just in penalties!!!
Current Interest Rate: 9.21% (8th May 2015 onwards)
Example: using the $100 overdue example above: the total interest will be calculated on total tax owing including penalties = $100 tax owing + $292 penalties = 8.4% x $392 = $32.90.
The total now you owe the IRD after 1 year of not paying $100 tax on time is: $424.90
How interest is calculated…
- Interest is calculated on a daily basis on the amount underpaid tax.
- Interest on tax underpayments is charged on the tax owing, which includes accumulated penalties and shortfall penalties.
- Interest does not compound and is not included when calculating penalties.
- Interest starts on the day after the original due date for the relevant return period. It ends on the day the tax is fully paid.
Interest applies to these taxes and duties
- Casino duty
- Cheque duty
- Child support deductions by employers
- Foreign dividend withholding payments
- Fringe benefit tax (FBT)
- Gaming machine duty
- Gift duty
- Goods and services tax (GST)
- Imputation accounts
- Income tax
- Lottery duty
- Non-resident withholding tax (on interest and dividends)
- PAYE deductions
- Qualifying company election tax
- Resident withholding tax (on interest and specified dividends)
- Student loan deductions by employers
- ESCT (employer superannuation contribution tax)
- Totalisator duty
- Working for Families Tax Credits.
These interest rules do not apply to:
- student loan repayments, or
- child support payments.
The shortfall penalty is a percentage of the tax shortfall (deficit or understatement of tax), which results from certain actions by the employer. There are five types of penalties:
- lack of reasonable care (20%)
- unacceptable tax position (20%)
- gross carelessness (40%)
- abusive tax position (100%)
- evasion (150%).
The rate of shortfall penalty may be reduced for previous good behaviour.
In addition to these penalties you could be fined and/or imprisoned for up to five years.