Unacceptable tax position penalties and use-of-money interest

2010 amendment means taxpayers who rely on the CIR's official opinion with not be subject to use-of-money interest or the unacceptable tax position penalty.

New sections 120W and 141B(1D) have been added to ensure that taxpayers who rely on the Commissioner's official opinion will not be subject to use-of-money interest or to the unacceptable tax position penalty.

Background

A shortfall penalty for taking an unacceptable tax position can be imposed when a taxpayer's tax position fails to meet the standard of being "about as likely as not to be correct". The penalty applies when the tax position involves a significant amount of tax. Use-of-money interest imposed on a taxpayer is charged when tax is underpaid.

It was possible that an unacceptable tax position penalty and use-of-money interest could have applied if the taxpayer had underpaid their tax as a result of relying on advice provided by Inland Revenue.

Key features

New sections 120W and 141B(1D) and a definition of "Commissioner's official opinion" ensure that taxpayers who rely on official Inland Revenue advice will not be subject to use-of-money interest or to the unacceptable tax position penalty as a result of their reliance.

The advice relied on will have to be:

  • provided orally or in writing by the Commissioner as the official position of Inland Revenue and applicable specifically to the taxpayer (with all the relevant facts having been provided by the taxpayer); or
  • a finalised official written statement of the Commissioner if it applies to the taxpayer's situation.

The amendments do not apply to private binding rulings. As these rulings are binding on the Commissioner, the taxpayer, in following the ruling, will not be subject to interest or the unacceptable tax position penalty.

The definition of "Commissioner's official opinion" was amended at select committee. The definition was broadened to include a finalised official written statement of the Commissioner if it applies to the taxpayer's situation

Application dates

The amendments apply to the Commissioner's official opinions given from the day of Royal assent, being 7 September 2010.