In New Zealand, if you understate your income tax in your tax return, you may be subject to a shortfall penalty.
The shortfall penalties are as follows:
Not taking reasonable care: 20%
Unacceptable tax position: 20%
Gross carelessness: 40%
Taking an abusive tax position: 100%
Examples of how these penalties might arise include:
Not taking reasonable care: a taxpayer declares income in another currency such as U.S. dollars.IRD might view this as not taking reasonable care.
Gross carelessness: a taxpayer forgets to include $20,000 gross dividend income.
Taking an abusive tax position: a taxpayer knowingly might account for financial arrangements on the cash basis, when actually required to apply the financial arrangements rules. This might be viewed as an abusive tax position if the taxpayer can be proven to have willfully or recklessly ignored the financial arrangements rules.
Evasion: a taxpayer might knowingly and willfully fail to declare income. IRD most recently have focussed on cash jobs performed by tradespersons as tax evasion to be mitigated.
The penalty itself is 10% of the tax deficit. For example, if the understated amount of income is $20,000, the penalty will be $2,000.