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Liability and penalties for voluntary corrections

Last updated 20 July 2023

The penalties and interest we may charge on a voluntary disclosure and when they may be reduced.

Understanding liability

In some situations, you may wish to make a voluntary disclosure where you consider your position at law to be correct or potentially correct but the outcome is unclear.

Where you explicitly state the voluntary disclosure is for 'protection' or has a nature similar to a 'without prejudice disclosure', no adjustment will occur without further examination. However, we will generally require further information relating to the error to understand the situation.

The same provisions for reduction of penalties apply to these conditional disclosures as for disclosures that are silent on the issue or note that there was an error or incorrect statement.

Reduction of penalties and interest

If you make a voluntary disclosure, you can generally expect a reduction in the administrative penalties and interest charges that would normally apply. Administrative penalties are those we may impose without taking court action.

You also don't need to admit there is a liability or that you were incorrect in your original statement when you make a voluntary disclosure.

Where there is an error in information that you have provided you may be liable to a penalty. However, we will not apply a false or misleading statement penalty if you have taken reasonable care, even though the information is incorrect.

If you did not take reasonable care a penalty may apply. Penalties may also apply for statements that do not have a reasonably arguable position or result in a scheme shortfall amount.

If you make a voluntary disclosure the penalty, if any, may be reduced.

The level of any reduction of penalty is dependent on when a voluntary disclosure is made. Generally, a greater reduction is given when the disclosure is made before we notify you of an examination (such as a review or audit).

Reduced interest charges

A correction that increases your tax (or reduces your credits) creates a shortfall amount, which may incur an interest charge. We may reduce this charge if the shortfall amount results from an unprompted voluntary disclosure (made outside any audit or review).

You may have to ask us to reduce the interest charge and provide additional information.

Reduced penalties

We can impose no penalty, or one of 3 penalty amounts, following our assessment of your voluntary disclosure. These penalty amounts can often be reduced, depending on when you tell us about the correction. Generally, the reduction is greater if you make a voluntary disclosure before we notify you of an examination.

We will reduce some penalties by 80% if you tell us about a shortfall amount before the earlier of:

  • the day we tell you we are going to conduct an examination of your affairs, or
  • the last day we will accept a voluntary disclosure if we have publicly requested voluntary disclosures about a transaction that applies to your financial affairs.

If the shortfall is less than $1,000, we will reduce the penalty to nil if you tell us about it before we tell you that we are going to examine your tax affairs and we have not publicly requested voluntary disclosures.

If you make the voluntary disclosure after we advise you that we will conduct a tax examination, we will reduce the penalty by 20% if your disclosure can reasonably be estimated to have saved us a significant amount of time or resources.

Often at the beginning of an audit or during the course of a review we invite a voluntary disclosure. If you make one before the date advised or during the review, usually the penalty, if any, will be reduced by 80%.

You can ask us to reduce the amount of some penalties and if we decline your request, you can object to that decision.

For an outline of the way section 284-225 of Schedule 1 of the Taxation Administration Act 1953 will apply to voluntary disclosures, see MT 2012/3 Administrative penalties: voluntary disclosures.