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The New Zealand tax system is based on self-assessment and voluntary compliance. Most tax payers meet these requirements by declaring all income and filing their tax returns on time.

If someone has not declared all their income or has not filed tax returns when required to do so, there is a risk of massive interest & penalties and even a criminal conviction if audited by the IRD.

The voluntary disclosure rules provide an incentive to taxpayers to determine their correct tax liability. The rules also reflect the savings to Inland Revenue from voluntary admissions of irregularities and other benefits of co-operation by taxpayers. By making a full voluntary disclosure, a taxpayer will attain the advantage of either a full or partial reduction of any shortfall penalty for which they are liable and may also avoid prosecution action. (SPS 09/02 Voluntary disclosures, www.ird.govt.nz )

Making a full voluntary disclosure prior to an IRD audit notification the commissioner will allow a reduction in the shortfall penalty rate as per below:

  1. by 100% under section 141G(3)(a)(i) if the taxpayer makes a pre-notification disclosure, and:

ü  the shortfall penalty is for not taking reasonable care (section 141A); or

ü  the shortfall penalty is for taking an unacceptable tax position or is an unacceptable interpretation (section 141B); or

  1. by 100% under section 141J(2)(a)(i) if:

ü  a taxpayer makes a pre-notification disclosure, and

ü  the shortfall penalty is imposed under either section 141A or 141B and relates to a temporary tax shortfall, or

  1. by 75% under section 141G(3)(a)(ii) if:

ü  the taxpayer makes a pre-notification disclosure, and

ü  the shortfall penalty is for gross carelessness (section 141C), an abusive tax position (section 141D), evasion or similar act (section 141E) or a promoter penalty (section 141EB), or

  1. by 75% under section 141J(2)(b) if:

ü  the taxpayer makes a pre-notification disclosure and the shortfall penalty is imposed under any of sections 141C to 141EB and relates to a temporary tax shortfall, or

ü  makes a post-notification disclosure and the shortfall penalty is imposed under any of sections 141A to 141EB and relates to a temporary tax shortfall

Once notification of an IRD audit is received the taxpayer can still make a full voluntary disclosure and the commission will allow a 40% reduction in the shortfall penalty rate under section 141G(3)(b).

As per the above its best to do a voluntary disclosure prior to notification of an audit. Here at IBBZ Accounting have done numerous voluntary disclosures and have a very high client satisfaction rate. The sooner you contact us the better it is for the case.

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