SPS 15/02
Issued
24 Nov 2015

Remission of penalties and use-of-money interest (WITHDRAWN)

SPS 15/02 sets out the CIR's practice for granting remission of penalties and interest under the Tax Administration Act 1994.

Withdrawn

This statement has been withdrawn and is provided for historical purposes only.

Introduction

Standard Practice Statements describe how the Commissioner of Inland Revenue will exercise a statutory discretion or deal with practical issues arising out of the administration of the Inland Revenue Acts.

This statement sets out the Commissioner’s practice when granting remission of penalties and use-of-money interest1 under ss 183A, 183ABA and 183D of the Tax Administration Act 1994 (the TAA).

Unless specified otherwise, all legislative references in this statement refer to the TAA. The relevant provisions are:

  • ss 140B, 140CB, 141AA, 141B(1D), 141ED, 183A, 183ABA, 183D, 183H; and
  • s YA 1 of the Income Tax Act 2007 (definition of “emergency event”).

The statement does not apply to requests for remission of penalties and use-of-money interest charged on:

  • Child Support payments by receiving carers or liable parents;
  • student loan repayments; or
  • shortfall penalties, except for shortfall penalties imposed by s 141AA (Shortfall penalty if non-resident contractor relieved from all liability to pay tax on contract payment) or s 141ED (Not paying employer monthly schedule amount).

Application

Taxpayers are encouraged to contact Inland Revenue as soon as possible if they think that they may have trouble paying their tax in full by the due date, or that they may experience serious hardship, so that the options for financial relief can be discussed. Taxpayers need not wait for a due date to pass before applying for financial relief.2

This statement applies to remission requests received on or after 24 November 2015. It replaces SPS 05/10 Remission of penalties and interest (Tax Information Bulletin Vol 17, No 9 (November 2005): 68), which was issued on 17 October 2005.

Reviewing a decision

If a taxpayer is concerned that their request for remission has not been given proper consideration, they should raise their concern and ask for the decision to be reviewed.

If a taxpayer is still not satisfied with the level of service they receive, they can obtain more information about the Inland Revenue Complaints Management Service or phone 0800 274 138 (Monday to Friday between 8am and 5pm).

Standard Practice

Summary

  1. The following standard practice will apply for taxpayers requesting remission of penalties and use-of-money interest under ss 183A, 183ABA and 183D.
  2. Inland Revenue recognises that penalising a taxpayer for a small non-compliant action may be counterproductive and may actually reduce voluntary compliance. Inland Revenue considers it important to treat taxpayers requesting a remission of penalties and use-of-money interest and those in a similar tax position fairly and consistently. For example, while allowing a penalty to remain could affect that taxpayer’s future compliance, a lenient remission practice may also mean that compliant taxpayers, who have met their obligations on time, may be less likely to do so in the future.

Form of the application

  1. Requests for remission of the following penalties and use-of-money interest must be made in writing, via the myIR secure online service or addressed to the Commissioner of Inland Revenue, PO Box 39010, Wellington Mail Centre, Lower Hutt 5045:
    • imputation penalty tax imposed by s 140B;
    • Māori authority distribution penalty tax imposed by s 140CB;
    • a shortfall penalty imposed by s 141AA; and
    • use-of-money interest.
  2. Requests for the remission of the following penalties do not need to be made in writing, but may be sent via the myIR secure online service or by phone 0800 227 771 (personal customers), 0800 377 771 (business customers) or 0800 443 773 (for large enterprises):
    • a late filing penalty;
    • a non-electronic filing penalty; and
    • initial and incremental late payment penalties.

Remission on application

  1. Section 183H provides that a taxpayer seeking remission of use-of-money interest or penalties under ss 183A or 183D must make written application to the Commissioner if the requested remission is of:
    • an imputation penalty tax imposed by s 140B;
    • a Māori authority distribution penalty tax imposed by s 140CB;
    • a shortfall penalty imposed by s 141AA; or
    • use-of-money interest under Part 7.
  2. The taxpayer must also provide supporting information for the remission of use-of-money interest and all tax penalties covered by ss 183A, 183ABA and 183D if requested by the Commissioner.
  3. Requests may be sent to Inland Revenue via the myIR secure online mail service. Alternatively, visit the contact us page for more contact details.

Section 183A - Remission for reasonable cause

  1. If the Commissioner is satisfied that the non-compliance has been caused by an event or circumstance beyond the control of the taxpayer and the non-compliance was rectified as soon as practicable (that is, as soon as it was feasible or realistic), remission will be granted under s 183A(1A) for:
    • a late filing penalty;
    • a non-electronic filing penalty;
    • initial and incremental late payment penalties;
    • imputation penalty tax;
    • Māori authority distribution penalty tax;
    • a shortfall penalty imposed by s 141AA;
    • a civil penalty imposed by s 215 of the KiwiSaver Act 2006; and/or
    • a penalty for not paying an employer monthly schedule amount imposed by s 141ED.
  2. Requests for remission of penalties under s 183A will only be considered when the returns relevant to the request for remission have been filed and any outstanding core tax (that is, not including any interest or penalties that have been charged) has been paid.

Section 183ABA - Remission in circumstances of emergency event

  1. The Commissioner will remit use-of-money interest under s 183ABA when:
    • an emergency event physically prevents a taxpayer from making a tax payment; and
    • the taxpayer has applied for remission of use-of-money interest as soon as practicable; and
    • the taxpayer made the payment of tax as soon as practicable; and
    • the taxpayer is a member of a class of persons to whom remission is available under an Order in Council declaring the emergency event; and
    • the Commissioner is satisfied that the effect on the taxpayer of the occurrence of the emergency event makes the remission equitable.

Section 183D - Remission consistent with collection of highest net revenue over time

  1. If it is consistent with the Commissioner’s duty to collect the highest net revenue over time, the Commissioner will remit the following penalties and interest under s 183D:
    • a late filing penalty;
    • a non-electronic filing penalty;
    • initial and incremental late payment penalties;
    • a shortfall penalty imposed by s 141AA;
    • a civil penalty imposed by s 215 of the KiwiSaver Act 2006;
    • a penalty for not paying an employer monthly schedule amount imposed by s 141ED; and/or
    • use-of-money interest.
  2. The Commissioner will remit use-of-money interest in limited circumstances and will consider each case on its merits.

Background

  1. Under the Inland Revenue Acts, taxpayers are expected to pay their tax in full and on time. Penalties provide an incentive to all taxpayers to comply with the law.
  2. The remission provisions in the TAA allow the Commissioner to accommodate circumstances where enforcing a penalty or use-of-money interest may be inappropriate. The Commissioner will weigh the particular circumstances in each taxpayer's case against the standard practice outlined in this statement and the relevant legislation.
  3. Remission will occur when the penalty or use-of-money interest is correctly charged at the time, but it is decided to relieve the taxpayer of their liability to pay.
  4. When the tax, penalty or use-of-money interest was incorrectly charged at the time, the penalty will be reversed rather than remitted.

Detailed discussion

Section 183A - Remission for reasonable cause

  1. Section 183A of the TAA provides:
    183A Remission for reasonable cause
    (1) This section applies to -
      (a) a late file penalty:
      (b) a non-electronic filing penalty:
      (c) a late payment penalty:
      (d) imputation penalty tax imposed by section 140B:
      (e) [Repealed]
      (f) Māori authority distribution penalty tax imposed by section 140CB:
      (g) a shortfall penalty imposed by section 141AA:
      (h) a civil penalty imposed under section 215 of the KiwiSaver Act 2006:
      (i) a penalty for not paying employer monthly schedule amount imposed by section 141ED.
    (1A) The Commissioner may remit the penalty if the Commissioner is satisfied that -
      (a) a penalty to which this section applies arises as a result of an event or circumstance beyond the control of a taxpayer; and
      (b) as a consequence of that event or circumstance the taxpayer has a reasonable justification or excuse for not furnishing the tax return or an employer monthly schedule, or not furnishing an employer monthly schedule in a prescribed electronic format, or not paying the tax on time; and
      (c) the taxpayer corrected the failure to comply as soon as practicable.
    (2) Without limiting the Commissioner's discretion under subsection (1), an event or circumstance may include -
      (a) an accident or a disaster; or
      (b) illness or emotional or mental distress.
    (3) An event or circumstance does not include -
      (a) an act or omission of an agent of a taxpayer, unless the Commissioner is satisfied that the act or omission was caused by an event or circumstance beyond the control of the agent -
      (i) that could not have been anticipated; and
      (ii) the effect of which could not have been avoided by compliance with accepted standards of business organisation and professional conduct; or
      (b) a taxpayer's financial position.
  2. Section 183A does not apply to use-of-money interest. Nor does it apply to shortfall penalties, with the exception of those imposed by ss 141AA and 141ED.
  3. A penalty may be remitted if the Commissioner is satisfied that the penalty arose as the result of an event or a circumstance beyond the taxpayer’s control and there is reasonable justification for the breach of the relevant tax laws. In addition, the taxpayer must have filed the relevant return and paid any outstanding core tax as soon as practicable after the event or circumstance that caused the breach.
  4. The taxpayer will also have to provide other information for a s 183A request if asked to do so by the Commissioner.

Is there a reasonable justification or excuse?

  1. In CIR v Fuji Xerox New Zealand Limited (2002) 20 NZTC 17,470 (CA), it was determined that before an event or circumstance can be considered to provide a taxpayer with reasonable justification for failing to meet their obligations:
    • the event or circumstance relied on by the taxpayer must be identified;
    • it must be determined whether the event or circumstance was beyond the control of the taxpayer; and
    • consideration must be given to whether the event or circumstance provided the taxpayer with reasonable justification.
  2. Whether there is a reasonable justification for the omission caused by an event or circumstance will be determined objectively.
  3. Section 183A(3)(a) expressly excludes an event or circumstance caused by an act or omission by an agent of the taxpayer from being a relevant event or circumstance. However, remission can be considered if the act or omission was caused by an event or circumstance that was beyond the control of the agent, could not have been anticipated, and the effect of which could not have been avoided by compliance with acceptable standards of business and professional conduct.
  4. The term “agent of the taxpayer” is not defined in the TAA. For Inland Revenue purposes, it is someone who has been given due authority by the taxpayer to act on their behalf in relation to their general, or specific, tax matters. It could include tax agents, intermediaries or other nominated persons.
  5. Section 183A(3)(b) excludes a taxpayer’s financial position from the definition of “event or circumstance”. Requests for financial relief are dealt with under ss 176 and 177.

Factors the Commissioner will consider for a s 183A remission

  1. The TAA provides that an “event or circumstance” may include “an accident or a disaster or illness or emotional or mental distress”. However, the Commissioner also has the discretion to consider other circumstances that are not specifically included in the legislation.
  2. In deciding whether remission is appropriate, the Commissioner will consider the following factors:
    • Was the penalty correctly charged?
    • Why did the taxpayer pay or file late?
    • Was the late payment caused by an event or circumstance that was beyond the control of the taxpayer?
    • Was the tax paid or return filed as soon as practicable (that is, as soon as it was feasible and realistic)? This will depend on the circumstances of each case. Specifically, was the default corrected as soon as possible after the event or circumstance passed?
    • Was the late payment the result of an act or omission of the taxpayer's agent? Did an event or circumstance beyond the control of the agent cause the non-compliance? Could the default have been avoided by compliance with accepted standards of business organisation and professional conduct?
    • Any other information that the Commissioner considers relevant in assessing the application.
Examples

Emotional or mental distress (late filing penalty)

A taxpayer’s return was due on 7 July. However, before the due date, the taxpayer’s daughter became seriously ill and was hospitalised. Her condition steadily deteriorated and the family spent a great deal of time at the hospital, where she was in intensive care until the first week in September.

During this time a reminder notice was issued advising the taxpayer that a late filing penalty would be charged if the current year's income tax return was not filed within 30 days. The taxpayer filed the overdue return in mid-October, along with a letter from the daughter’s doctor to confirm her illness and hospitalisation. This was after the penalty was charged.

In these circumstances, the illness of the taxpayer’s daughter is out of the taxpayer’s control. Although the taxpayer filed the return three months after the due date, this would be considered a “practicable” timeframe after the event or circumstance, as it allowed a reasonable time for the taxpayer to get their affairs in order after their daughter had recovered sufficiently from her illness. Therefore, remission would be appropriate in this case.

Circumstance beyond agent's control (late payment penalty)

A tax agent was entrusted to pay a client's income tax by the due date of 7 April, as the taxpayer would be travelling overseas on the due date. The taxpayer could not make an online payment as they would not have access to the internet while in transit or at the location they were headed to. The agreed plan between the taxpayer and their tax agent was for the tax agent to hand deliver the taxpayer’s cheque to the local Inland Revenue office on the due date. The cheque was made out for the correct amount, signed and post-dated for the due date. The cheque was given to the tax agent and placed in the tax agent’s office safe.

On the night of 6 April, the tax agent’s office was burgled and the safe and its contents were destroyed. The tax agent contacted Inland Revenue on the due date and explained the situation regarding the burglary and the absence of the taxpayer. Inland Revenue requested information supporting these events such as a police report. A month later, the tax agent finally managed to contact the taxpayer about the burglary and the taxpayer arranged a direct credit to their tax agent’s account. The tax agent paid the outstanding tax. The tax agent also provided a New Zealand Police report verifying the date and location of the burglary that confirmed the safe and its contents were destroyed and also provided a copy of the taxpayer’s travel itinerary.

In these circumstances, the taxpayer paid the tax as soon as they became aware of the burglary and that their tax had not been paid, even though it was over a month after the due date. The tax agent also notified Inland Revenue immediately of the circumstances and provided supporting information. This is considered to be an event “beyond the agent's control”.

Whether the taxpayer applied for the remission as soon as practicable (late filing penalty)

The Governor-General has declared a storm in the Auckland area as a qualifying event. A taxpayer's business premises were severely damaged by the storm. The taxpayer was unable to access his records and file a tax return until two months later. Due to the taxpayer's oversight, another seven months elapsed before the taxpayer applied for remission of the late filing penalty. In this case, the Commissioner will not exercise the discretion to remit the penalty because the taxpayer did not apply for the remission as soon as practicable.

Section 183ABA - Remission in circumstances of emergency event

  1. Section 183ABA of the TAA provides:
    183ABA Remission in circumstances of emergency event
    (1) This section applies for a taxpayer if—
      (a) an emergency event physically prevents the taxpayer from making a payment required by a tax law on or before the due date for the payment; and
      (b) the taxpayer is charged with interest under Part 7 for failing to make the payment by the due date; and
      (c) the taxpayer is a member of a class of persons to whom a remission under this section is available, if such a class of persons is described in the Order in Council declaring the emergency event.
    (2) The taxpayer may ask the Commissioner to remit the interest.
    (3) The Commissioner may remit the interest if the Commissioner is satisfied that—
      (a) it is equitable that the interest be remitted; and
      (b) the taxpayer asked for the relief as soon as practicable; and
      (c) the taxpayer made the payment as soon as practicable.
    (4) The Governor-General may from time to time by Order in Council—
      (a) declare an event that meets the requirements of paragraphs (a) and (b) of the definition of emergency in section 4 of the Civil Defence Emergency Management Act 2002, to be an emergency event:
      (b) describe a class or classes of persons to whom a remission under this section is available in relation to the emergency event.
    (5) An Order in Council (the order) made under subsection (4) or this subsection—
      (a) may relate to an event that occurred after the commencement of this Act and before the commencement of the order:
      (b) expires, if not renewed under paragraph (c), after—
      (i) the period given in the order, if such a period is given; or
      (ii) if no such period is given, 6 months from the promulgation of the order:
      (c) may be renewed or replaced from time to time by an Order in Council made before or after the date on which the order would otherwise expire.
  2. Section 183ABA allows the Commissioner to remit use-of-money interest (but not penalties) when:
    • an Order in Council has declared an emergency event (see [33] to [34]);
    • the emergency event physically prevents a taxpayer from making a tax payment; and
    • the Commissioner is satisfied that:
      1. it is equitable that the use-of-money interest be remitted;
      2. the taxpayer has applied for remission of the use-of-money interest as soon as practicable; and
      3. the taxpayer made the payment as soon as practicable.
  3. Taxpayers may be unable to comply with their tax obligations when an emergency event significantly affects them in the following ways:
    • they are unable to access their records – for example, through evacuation or destruction of a home or business; or
    • they are unable to make payments because they are physically prevented from doing so – for example, extensive infrastructure damage that prevents any local movements, disrupts postal deliveries or damages phone lines.
  4. Relief under s 183ABA may be granted if the effect of the emergency event on the taxpayer makes it equitable that the interest be remitted. Inland Revenue will consider remission of interest when the taxpayer’s personal situation makes it unjust or unfair not to remit the interest.
  5. A taxpayer who is seeking remission should pay the tax and apply for the remission as soon as practicable after the event. Case law defines the term “as soon as practicable” to mean “as soon as is feasible or realistic”. Again, this will depend on the circumstances of each case.

What is an emergency event?

  1. Section 183ABA applies only in the circumstances of an emergency event. An emergency event is an event that meets the definition of “emergency” in s 4 of the Civil Defence Emergency Management Act 2002 and has been declared to be an emergency event by Order in Council for the purposes of s 183ABA. For example, the Canterbury earthquakes of September 2010 and February 2011 were declared emergency events by Order in Council.3
  2. An emergency event can be natural or otherwise and can include an earthquake, tsunami, technological failure, riot or a warlike act. The key is that the emergency event falls within the definition of “emergency” in the Civil Defence Emergency Management Act 2002 and has been declared to be so by an Order in Council for the purposes of s 183ABA.
Examples

Whether a taxpayer is physically prevented by an emergency event from making a tax payment by the due date

The Governor-General, by Order in Council, has declared the 2011 earthquake in the Canterbury area to be an emergency event.

A taxpayer resides in Christchurch, where he owns business premises. All the taxpayer’s business records were stored at the business premises. The business was in the red zone and the taxpayer was not permitted to access the business. Therefore, the taxpayer was physically prevented from accessing records that were needed to calculate his tax and file his returns, and also his business systems to organise and pay his tax. The taxpayer eventually managed to obtain copies of bank statements and other information, and he filed his return and paid his tax based on this information. However, as a consequence, the tax was paid late and the Commissioner imposed use-of-money interest and a late payment penalty. The taxpayer requested remission and provided supporting evidence (for example, a report on the damaged business premises from the taxpayer’s insurance company and confirmation that the building was in a restricted zone). The taxpayer’s request for remission of the use-of-money interest will be accepted because the Commissioner is satisfied the taxpayer was physically prevented by the emergency event from paying his tax by the due date. The taxpayer’s request for the remission of the late payment penalty will also be accepted, as the inability to access his records due to the earthquake was a reasonable justification for not paying the tax on time as per s 183A (Remission for reasonable cause).

Assume the same facts, except that the taxpayer’s business records were stored at his residence, which was unaffected by the earthquake. In this case, the taxpayer’s request for remission of use-of-money interest (or the late payment penalty under s 183A) will not be accepted, as the Commissioner is not satisfied the taxpayer was physically prevented by the emergency event from paying his tax by the due date.

Whether the taxpayer applied for the remission as soon as practicable

The Governor-General, by Order in Council, has declared a storm in the Auckland area to be an emergency event. A taxpayer’s business premises were severely damaged by the storm. The taxpayer was unable to access his records and calculate and pay tax owing by the due date. The taxpayer calculated and paid the tax as soon as possible after gaining access to his records. However, as a result of oversight, a further seven months elapses before the taxpayer applies for remission of the use-of-money interest charged. In this case, the Commissioner will not exercise the discretion to remit the use-of-money interest because the taxpayer did not apply for the remission “as soon as practicable”.

Section 183D - Remission consistent with collection of highest net revenue over time

  1. Section 183D of the TAA states:
    183D Remission consistent with collection of highest net revenue over time
    (1) The Commissioner may remit—
      (a) a late filing penalty; and
      (aa) a non-electronic filing penalty; and
      (b) a late payment penalty; and
      (bb) a shortfall penalty imposed by section 141AA; and
      (bc) a civil penalty imposed under section 215 of the KiwiSaver Act 2006; and
      (bd) a penalty for not paying employer monthly schedule amount imposed by section 141ED; and
      (c) interest under Part 7—
      payable by a taxpayer if the Commissioner is satisfied that the remission is consistent with the Commissioner's duty to collect over time the highest net revenue that is practicable within the law.
    (2) In the application of this section, the Commissioner must have regard to the importance of the penalty, and interest under Part 7, in promoting compliance, especially voluntary compliance, by all taxpayers and other persons with the Inland Revenue Acts.
    (3) The Commissioner must not consider a taxpayer's financial position when applying this section.
  2. Section 183D provides for the remission of penalties and use-of-money interest if the remission is consistent with the Commissioner’s duty to collect over time the highest net revenue that is practicable within the law. Furthermore, in applying s 183D the Commissioner must have regard to how the imposition of penalties and use-of-money interest is used in promoting compliance, especially voluntary compliance.
  3. The Commissioner recognises that pursuing the collection of penalties in some circumstances will not be consistent with those aims – for example, when a penalty may have been imposed due to:
    • a genuine error; or
    • a one-off situation.
  4. Section 183D does not apply to shortfall penalties other than those imposed by ss 141AA and 141ED.
  5. There is no requirement to remit any of the penalties and use-of-money interest and each case will be considered on its own merits.
  6. When considering remission under s 183D, the taxpayer's financial situation cannot be taken into account; that is, the taxpayer’s inability to pay the tax owing is not grounds for remission.

Remission of use-of-money interest

  1. Applications for the remission of use-of-money interest will be considered under s 183D. The use-of-money interest may be remitted in full or in part. Section 183E also provides for remission of use-of-money interest, but only as a consequence of the underlying tax being remitted.
  2. The remission of use-of-money interest will only be given in limited circumstances. Consistent with s 183D(2), the test of whether interest should be remitted focuses on whether the charging of interest (in the case under consideration) would be inconsistent with the purposes of charging interest, that is, to compensate the Commissioner or the taxpayer for the loss of use of money and also to encourage voluntary compliance.
  3. Each application for remission will be considered on the merits of the case, including taking into account:
    • whether the charging of use-of-money interest was appropriate;
    • whether remission would undermine the purpose of use-of money interest or promoting voluntary compliance; and
    • whether remission is consistent with the Commissioner’s duty to collect over time the highest net revenue that is practicable within the law.

Factors the Commissioner will consider for a s 183D remission

  1. In deciding whether remission is appropriate, the Commissioner will consider the following factors:
    • Has the penalty or use-of-money interest been correctly charged?
    • If it has been incorrectly charged, it will not be remitted but the penalty or use-of-money interest will be reversed.
    • Why did the taxpayer pay or file late, or not file electronically?
    • Whether the non-compliant action was the result of a genuine oversight or a one-off situation:
      1. Requests for remission because of a genuine oversight or a one-off situation apply to penalties only. Inland Revenue will not remit use-of-money interest in these cases as it is compensation to the Crown for the loss of the use of the money over time.
      2. The Commissioner is unlikely to remit use-of-money interest charged because of a third party default. In these situations the Commissioner considers the taxpayer should look to that third party for compensation.
    • Has Inland Revenue given incorrect advice to the taxpayer, or was there an error in an Inland Revenue publication that has resulted in the taxpayer incurring the penalty or interest?
      If an Inland Revenue officer has given incorrect advice to a taxpayer (for example, the taxpayer has directly been given an incorrect date or amount for a tax payment) or the taxpayer relies on incorrect information contained in an Inland Revenue publication, it would be unreasonable for the Commissioner to impose a penalty or charge interest.
    • Any other information that Inland Revenue considers relevant in assessing the application. In particular, how will the remission contribute to the collection of the highest net revenue over time and otherwise promote voluntary compliance by all taxpayers?
Examples

One-off situation (late filing penalty and late payment penalty)

An employer has a computer payroll package set up to prepare the employer monthly schedule for ir-FILE. A computer virus was detected on 4 August when the schedule was due for transmission on 5 August. The software developer was called but the problem was not fixed until 7 August, when the schedule was prepared and transmitted. On the same day, the remittance slip and payment were sent, together with the software developer’s report confirming when the virus was detected, the actual location of the virus in the computer system, the effect of the virus on transmission of the employer monthly schedule, and when the problem was finally resolved. The late filing and late payment penalties will be remitted, as this is a situation beyond the taxpayer's control. The use-of-money interest will not be remitted and will remain payable.

Incorrect advice (late payment penalty)

A small business taxpayer registered for GST as a six-monthly payer. However, as business improved the taxpayer elected to file GST returns two-monthly. The taxpayer sought advice from the nearest Inland Revenue office but, unfortunately, confusion arose over the date the next return was due to be filed. This resulted in the imposition of a late payment penalty. The taxpayer sought penalty remission and provided supporting documentation confirming the name of the Inland Revenue officer who gave the advice, the date of obtaining that advice and the contents of that advice. Remission of the late payment penalty would be granted under s 183D due to incorrect information being given by Inland Revenue.

Relying on the Commissioner's official opinion

  1. Section 120W provides that a taxpayer is not liable to pay interest to the Commissioner on unpaid tax to the extent that the interest arises because the taxpayer relied on a “Commissioner’s official opinion” as defined in s 3:
    Commissioner's official opinion-
    (a) means, for a taxpayer, —
      (i) an opinion of the Commissioner concerning the tax affairs of the taxpayer, given by the Commissioner, either orally or in writing, after all information relevant to forming the opinion has been provided to the Commissioner, if that information is correct:
      (ii) a finalised official statement of the Commissioner, in writing, if it specifically applies to the taxpayer's situation:
    (b) does not include a private binding ruling
  2. Section 120W does not apply to misinterpretations of what is written in an Inland Revenue publication.
Examples

Incorrect advice (interest)

A taxpayer is advised of an incorrect date for PAYE and incurs a late payment penalty and interest. As the late payment penalty and interest were caused by Inland Revenue’s error, the late payment penalty would be remitted and the interest cancelled. The taxpayer would be expected to provide evidence to support the assertion that incorrect information was given by Inland Revenue. Relevant evidence may include the name of the Inland Revenue officer who gave the advice, the date of obtaining that advice and the contents of that advice. Section 120W provides that a taxpayer is not liable to pay interest where the interest arises because the taxpayer relied on the Commissioner’s official opinion.

Incorrect advice (partial remission of interest)

A taxpayer rang Inland Revenue to find out what interest was accruing on their 2013 income tax account, as they had just received a statement of account showing some interest payable. The due date for the actual income tax was shown as 7 February 2014. They were advised that interest was not accruing so the taxpayer did not make payment immediately. Subsequently, the taxpayer was charged further interest.

The taxpayer applied to have the interest cancelled under section 120W on the grounds that payment would have been made immediately had it been known there was an on-going liability. Cancellation of interest was granted in part – the interest that had accrued until the time the taxpayer telephoned Inland Revenue was still payable. However, the taxpayer would be expected to provide evidence to support the assertion that incorrect information was given by Inland Revenue. Relevant evidence may include the name of the Inland Revenue officer who gave the advice, the date of obtaining that advice and the contents of that advice.

This Standard Practice Statement is signed on 24 November 2015.

 

Rob Wells
LTS Manager - Technical Standards


1 Use-of-money interest is calculated daily on the amount of unpaid tax including penalties. This is compensation for not having use of the unpaid tax and is to encourage taxpayers to pay the correct amount of tax on time. Use-of-money interest is not a penalty.
2 For information on Inland Revenue's practice for accepting tax payments as having been made in time, please see SPS 14/01 Tax Payments –when received in time.
3 Tax Administration (Emergency Event – Canterbury Earthquake) Order 2010.