Late Filing Penalty (WITHDRAWN)

Introduction

1. This Standard Practice Statement (SPS) sets out the Commissioner's practice for imposing late filing penalties under section 139A of the Tax Administration Act 1994 (TAA).

Application

2. This SPS applies from 4 February 2005 and replaces Standard Practice Statement RDC 5, Late filing penalty originally published in Tax Information Bulletin Volume 11, No 6 (July 1999).

Background

3. The New Zealand tax system is based on voluntary compliance.  It relies on taxpayers voluntarily meeting their obligations under the tax laws, for example, filing tax returns by the due date.  Section 139A of the TAA imposes a penalty on a taxpayer for failure to furnish certain returns by the due date.  For example, an annual tax return, employer monthly schedule or annual imputation return required to be furnished by an Australian imputation credit account company that is not required to furnish a return of income for an income year.  The purpose of the penalty is to promote voluntary compliance and ensure penalties for breaches are imposed impartially and consistently.

Legislation

Tax Administration Act 1994

139A Late filing penalties

1. This section applies to tax returns required to be furnished under sections 33, 41 to 44, and 79 (in this Part, "annual tax returns"), the annual imputation return required to be furnished under section 69(1) and (1B)(a) by an Australian imputation credit account company that is not required to furnish a return of income for an income year, the reconciliation statement required to be provided under regulation 3 of the Accident Rehabilitation and Compensation Insurance (Earnings Definitions) Regulations 1992 or regulation 15 of the Accident Insurance (Premium Payment Procedures) Regulations 1999 or any successor to that regulation made under the Injury Prevention, Rehabilitation, and Compensation Act 2001, and the employer monthly schedule required to be provided under section NC 15(1)(a) or (b) or (c) or (d) of the Income Tax Act 1994.
   
   
2. A taxpayer is liable to pay a late filing penalty if-
   1. The taxpayer does not complete and provide on time – 
      1. An annual tax return:  
      3. An annual imputation return required to be furnished under section 69(1) and (1B)(a): 
      4. A reconciliation statement: 
      5. An employer monthly schedule; and  
         
   2. The Commissioner notifies the taxpayer that the penalty is payable.  LI>
3. The late filing penalty for an annual tax return for a taxpayer with net income- 
   1. Below $100,000, is $50;  
   2. Between $100,000 and $1,000,000 (both figures inclusive), is $250; 
   3. Above $1,000,000, is $500.  
4. The late filing penalty for an annual imputation return or reconciliation statement or employer monthly schedule is $250.
5. Except in the case of a late filing penalty resulting from an employer monthly schedule, the Commissioner must, not less than 30 days before imposing a late filing penalty- 
   1. Send written notice to a taxpayer that a late filing penalty may be imposed if a return specified in the notice is not filed; or
      
   2. Publicly notify that a late filing penalty may be imposed on taxpayers who omit to file the required return.
      

In this Standard Practice Statement all legislative references are to the Tax Administration Act 1994 unless otherwise stated.

Discussion

4. Under section 139A, a late filing penalty applies to:
   
   
   • Annual tax returns;
   • ACC reconciliation statements;
   • Employer Monthly Schedules; 
   • Annual imputation returns required to be furnished under section 69(1) and (1B)(a) by an Australian imputation credit account company that is not required to furnish a return of income – from 1 April 2003. 
     
      
5. Although section 139A provides for late filing penalties to be imposed in respect of outstanding ACC reconciliation statements, Inland Revenue no longer collects these statements on behalf of the Accident Compensation Corporation.  Therefore, Inland Revenue will not impose late filing penalties in respect of these statements.  
   
   
6. The Commissioner must give at least 30 days notice to the taxpayer of the intention to impose a late filing penalty for an annual tax return or annual imputation return required to be filed by an Australian imputation credit account company.  The Commissioner must provide such a notice either in writing or by public notification to a taxpayer or group of taxpayers.  If the outstanding return is filed within the 30-day period, or an extension of time is granted to file the outstanding return, the penalty will not be imposed.
   
   
7. For employer monthly schedules, the Commissioner must notify the taxpayer that the late filing penalty is payable but no prior notification of intention to impose a penalty is required.  
   
   
8. The amount of the late filing penalty for annual tax returns is based on the amount of net income as follows:
   
   
   • Less than $100,000                     $50
   • From $100,000 to $1,000,000   $250
   • Greater than $1,000,000             $500
     
     
9. The amount of the late filing penalty for an employer monthly schedule and an annual imputation return required to be filed by an Australian imputation credit account company is $250.
   

Standard Practice

Imposing the late filing penalty 

10. The Commissioner's practice is that a late filing penalty is imposed on the following:
    
    
    • Income tax returns for individuals (IR 3)
    • Income tax returns for companies (IR 4) 
    • Employer monthly schedules (IR 348 and IR 349)
    • Annual imputation returns required to be furnished under section 69(1) and 69(1B)(a) by an Australian imputation credit account company that is not required to furnish a return of income for an income year that corresponds to an imputation year (IR 4J).
      
      
11. A late filing penalty will be imposed in the following circumstances.

    Income Tax returns 

12. A late filing penalty will be imposed in respect of an outstanding income tax return in the following situations: 
    
    
    1. the return is not filed by the due date, and is not subject to an extension of time arrangement; or
    2. the return is subject to an extension of time arrangement, and is not filed by the date agreed to in the arrangement; or
    3. an extension of time arrangement is withdrawn from a client/all clients of a tax agent, and the return(s) are not filed by the date specified when the extension of time was withdrawn; or
    4. the return is for a client of a tax agent with an extension of time arrangement and is not filed by the 31st of March in the year immediately following the income year to which the return applies.
       
       
13. The Commissioner will provide written notification of at least 30 days prior to the intention to impose the late filing penalty, either by public notification or directly to the taxpayer.
    
     
14. The amount of the penalty for outstanding income tax returns is determined from the taxpayer's previous year's net income based on the return filed.  Once the return is received the amount of the penalty is checked and amended if necessary, for example, where the net income is in a different income bracket to the previous year's return.  
    
    
15. If Inland Revenue has no information on which to base the late filing penalty, or the previous year's return has not been filed, the minimum penalty of $50 is imposed.  When the return is received the amount of penalty is checked and increased where appropriate.  If the amount of the late filing penalty is increased, time will be given to pay any additional penalty.  The minimum penalty remains payable if the return is subsequently filed and shows a loss.  
    
    
16. The due date for payment of a late filing penalty is the later of a date specified by the Commissioner, not being less than 30 days after the date of the notice informing of the imposition of the penalty, or the terminal tax due date for the income year to which the return relates. 

    Employer Monthly Schedule 

17. Although the Commissioner is only required to notify the employer that the penalty is payable and is not required to provide prior notification of the intention to impose the penalty, Inland Revenue will take a liberal approach in regard to imposing a late filing penalty in respect of an employer monthly schedule.
    
    
18. The first time an employer fails to file an employer monthly schedule by the due date, the Commissioner will issue a warning notice to the employer advising a late filing penalty will not be imposed providing the schedule is filed immediately.
    
    
19. If, within 12 months of the warning notice being issued, a further default in filing a schedule occurs (second default), a late filing penalty will be imposed in respect of that schedule (second default) and a notice will be issued to the employer advising the penalty is payable.
    
    
20. If the taxpayer defaults again after 12 months of a warning notice being issued, a further warning notice will be issued.  If a further default occurs within 12 months of the second warning notice being issued, a late filing penalty will be imposed in respect of that schedule.
    
    
21. The due date for payment of a late filing penalty is the 5th or 20th of the month following the month in which the schedule was due to be filed depending on whether the employer remits PAYE deductions monthly or twice monthly. 

    Annual Imputation return

22. A late filing penalty will be imposed when the return has not been filed by the due date and at least 30 days written notification of the intention to impose the penalty has been given, either directly to the taxpayer or by public notification.
    
    
23. The due date for payment of a late filing penalty is the later of a date specified by the Commissioner, not being less than 30 days after the date of the notice informing of the imposition of the penalty, or the date by which the company is required to furnish the annual imputation return.
    

Reversal or remission of late filing penalty 

24. The Commissioner's practice is that the late filing penalty may be reversed if: 
    
    
    • the return was filed before the date the late filing penalty was imposed, but had not been 'lodged' by Inland Revenue; or 
    • the return or employer monthly schedule was not required to be filed; or
    • in respect of an employer monthly schedule, the taxpayer did not pay any salary or wages even though a registered employer.
      
      
25. The Commissioner's practice is that the late filing penalty may be remitted if the legislative criteria contained in sections 183A and 183D of the TAA are met.  Remission of penalties is discussed in a separate Standard Practice Statement.
    
    
26. The Commissioner's practice is that the late filing penalty will not be remitted if: 
    
    
    • the taxpayer has an extension of time arrangement as a client of a tax agent, but the agent had not notified the Commissioner that the taxpayer was their client before the late filing penalty was imposed. 
    • the taxpayer was granted an extension of time arrangement (either as a client of a tax agent or individually), after the late filing penalty was imposed.
      

This Standard Practice Statement is signed on 4 February 2005.

Signed

Graham Tubb
National Manager
Technical Standards