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Tax Administration Act 1994

Penalties - Civil penalties

141D: Abusive tax position

You could also call this:

"When you try to avoid paying tax in a way that's not allowed"

Illustration for Tax Administration Act 1994

You take an abusive tax position when you try to avoid paying tax. This can happen when you enter into arrangements or interpret tax laws to reduce or remove tax liabilities. You may have to pay a penalty if you take an abusive tax position. You will have to pay a penalty of 100% of the tax shortfall if you take an abusive tax position. But the penalty can be reduced to 20% if you meet certain conditions, such as being part of an arrangement where section 141EB applies. The total tax shortfall from the arrangement must be less than $50,000 for you and people associated with you. Your tax position can be an abusive tax position if it is incorrect under tax laws. This includes general tax laws and anti-avoidance tax laws. An abusive tax position is one that is unacceptable and taken to avoid tax, either directly or indirectly. If you take an unacceptable tax position, this section applies to you. The time when you take an abusive tax position is determined by section 141B(6). For the purposes of this Part and section 177C, an abusive tax position is one that is unacceptable and taken to avoid tax.

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View the original legislation for this page at https://legislation.govt.nz/act/public/1986/0120/latest/link.aspx?id=DLM356459.

Topics:
Money and consumer rights > Taxes
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"Getting a penalty for being very careless with your tax"

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141E: Evasion or similar act, or

"Paying a penalty for not paying tax or helping someone cheat the tax system"

Part 9Penalties
Civil penalties

141DAbusive tax position

  1. The purpose of this section is to penalise those taxpayers who, having taken an unacceptable tax position, have entered into or acted in respect of arrangements or interpreted or applied tax laws with a dominant purpose of taking, or of supporting the taking of, tax positions that reduce or remove tax liabilities or give tax benefits.

  2. A taxpayer is liable to pay a shortfall penalty if the taxpayer takes an abusive tax position (referred to as an abusive tax position).

  3. The penalty payable for taking an abusive tax position is 100% of the resulting tax shortfall.

  4. The penalty payable for taking an abusive tax position is reduced to 20% of the resulting tax shortfall if—

  5. the taxpayer is a party to an arrangement to which section 141EB applies and becomes liable to a shortfall penalty for an abusive tax position as a result of that arrangement, irrespective of whether a promoter penalty has been imposed in respect of the arrangement; and
    1. the sum of the tax shortfall from the arrangement for the taxpayer and the tax shortfalls from the arrangement for persons with whom the taxpayer is associated is less than $50,000; and
      1. the taxpayer has independent advice stating that the taxpayer's tax position is not an abusive tax position.

        1. This section applies to a taxpayer if the taxpayer has taken an unacceptable tax position.

        2. Section 141B(6) applies for determining the time when a taxpayer takes an abusive tax position.

        3. A taxpayer's tax position may be an abusive tax position if the tax position is an incorrect tax position under, or as a result of, either or both of—

        4. a general tax law; or
          1. a specific or general anti-avoidance tax law.

            1. For the purposes of this Part and section 177C, an abusive tax position means a tax position that,—

            2. is an unacceptable tax position at the time at which the tax position is taken; and
              1. viewed objectively, the taxpayer takes—
                1. in respect, or as a consequence, of an arrangement that is entered into with a dominant purpose of avoiding tax, whether directly or indirectly; or
                  1. where the tax position does not relate to an arrangement described in subparagraph (i), with a dominant purpose of avoiding tax, whether directly or indirectly.

                  Notes
                  • Section 141D: inserted, on , by section 43 of the Tax Administration Amendment Act (No 2) 1996 (1996 No 56).
                  • Section 141D(1): amended, on (applying to a tax position that a taxpayer takes on or after 1 April 2003), by section 127(1) of the Taxation (Maori Organisations, Taxpayer Compliance and Miscellaneous Provisions) Act 2003 (2003 No 5).
                  • Section 141D(3B): inserted, on (applying to arrangements entered into on or after 26 March 2003), by section 127(2) of the Taxation (Maori Organisations, Taxpayer Compliance and Miscellaneous Provisions) Act 2003 (2003 No 5).
                  • Section 141D(3B)(b): replaced, on , by section 681 of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
                  • Section 141D(4): replaced, on (applying for tax positions taken on or after 1 April 2008), by section 253(1) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
                  • Section 141D(7): amended, on (applying on and after 1 December 2002), by section 90(1) of the Taxation (Relief, Refunds and Miscellaneous Provisions) Act 2002 (2002 No 32).
                  • Section 141D(7)(a): replaced, on (applying to a tax position that a taxpayer takes on or after 1 April 2003), by section 127(4) of the Taxation (Maori Organisations, Taxpayer Compliance and Miscellaneous Provisions) Act 2003 (2003 No 5).