Key features
New sections 120W and 141B(1D) and a definition of “Commissioner’s official opinion” are being introduced to ensure that taxpayers who rely on official Inland Revenue advice will not be subject to use-of-money interest or to the unacceptable tax position penalty. The advice relied on will be that provided orally or in writing by the Commissioner as the official position of Inland Revenue and applicable specifically to the taxpayer (with all the relevant facts having been provided by the taxpayer).
The amendment will not apply to advice that is in the form of a private binding ruling. As the ruling is binding on the Commissioner, the taxpayer, in following the ruling, will not be subject to interest or the unacceptable tax position penalty.
Background
A shortfall penalty for taking an unacceptable tax position can be imposed when a taxpayer’s tax position fails to meet the standard of being “about as likely as not to be correct”. The penalty applies when the tax position involves a significant amount of tax.
Use-of-money interest imposed on a taxpayer is charged when tax is underpaid and compensates the Crown for not having the use of its money.
It is possible that an unacceptable tax position penalty and/or use-of-money interest may apply if the taxpayer has underpaid their tax, even if this is as a result of having relied on advice provided by Inland Revenue.