Not paying employer monthly schedule (EMS) amount penalty
Issue: Imposition of the late payment penalty on the EMS penalty
Submission
(Matter raised by officials)
A late payment penalty should not be imposed on the EMS penalty.
Comment
An EMS penalty is imposed when an employer files an employer monthly schedule but does not pay some or all of the tax it should. The penalty was introduced in 2008 and is aimed at encouraging employers to comply by providing an incentive for them to pay tax associated with employer monthly schedules on time. It is imposed each month if the tax is not paid or the employer has not entered an instalment arrangement. A late payment penalty is imposed when taxpayers do not pay their tax, and any previous penalties imposed, on time. It too is imposed each month the amount remains unpaid.
Currently the EMS penalty is also subject to the late payment penalty.
To ensure that penalties do not accumulate too quickly, and are not disproportionate to the non-payment, officials recommend that the EMS penalty not be subject to the late payment penalty.
The amount of tax not paid will still be subject to late payment penalties as well as use-of-money interest.
Recommendation
That the submission be accepted.
Issue: Negotiation periods
Submission
(Matter raised by officials)
Employers wishing to enter an instalment arrangement should not be subject to the EMS penalty when they are negotiating an arrangement.
Comment
Currently, an employer who files an employer monthly schedule but does not pay the tax may be liable to an EMS penalty. Before the penalty is imposed the taxpayer will be warned that if they do not pay or enter an instalment arrangement a penalty will be imposed the following month.
To encourage employers to enter instalment arrangements, officials recommend that the EMS penalty should not be imposed when an employer is negotiating an instalment arrangement. If an instalment arrangement is not entered into or payment is not made, the employer will be warned and the EMS penalty will then be imposed.
Recommendation
That the submission be accepted.
Issue: Corrected amounts
Submission
(Matter raised by officials)
If the amount on the EMS changes, the EMS penalty should be calculated using the lesser of the corrected figure and the unpaid amount.
Comment
Currently, the EMS penalty is imposed on the lesser of the unpaid amount and the amount shown on the EMS when it is filed. Officials consider that if the employer corrects the schedule, the penalty should be calculated on the lesser of the corrected amount and the unpaid amount.
Recommendation
That the submission be accepted.
Issue: Ordering rule for payment
Submission
(Matter raised by officials)
The legislation should set out a rule for the application of a payment when an EMS penalty has been imposed.
Comment
If an EMS penalty has been imposed and a payment is then made, the payment should first be applied to the EMS penalty and then to the core tax owing. If the payment is not applied to the penalty first, taxpayers would pay the core tax and the penalty would remain outstanding with the risk that the penalty is never paid.
Similar rules apply for late payment penalties and use-of-money interest.
Recommendation
That the submission be accepted.
Issue: Assessment of the EMS penalty
Submission
(Matter raised by officials)
The EMS penalty should not be assessed in the same way as the tax to which it relates and the Commissioner should not give a notice of assessment to the taxpayer.
Comment
Under section 94A(2), a shortfall penalty is assessed in the same way as the tax to which it relates, and under section 111, the Commissioner must give a notice of assessment to the taxpayer. The EMS penalty is a shortfall penalty. However, unlike other shortfall penalties it is imposed each month that an EMS amount is not paid and is therefore more like a late payment penalty.
Before an EMS penalty is applied, the employer is warned. When the penalty is applied, the employer receives another letter and a statement setting out the penalty and the core tax, therefore it is not necessary to send a separate notice of assessment. Officials consider that the EMS penalty should not be assessed in the same way as the tax to which it relates and the Commissioner should not give a notice of assessment to the taxpayer. This would mean that the EMS penalty and the late payment penalty are imposed in the same way.
Recommendation
That the submission be accepted.
Issue: Imposition of the EMS penalty on amounts less than $100
Submission
(Matter raised by officials)
The EMS penalty should not be imposed on amounts of $100 or less rather than amounts of less than $100.
Comment
Penalties and interest are not charged on small amounts. In the current legislation, the EMS penalty is not imposed if the unpaid amount is less than $100. The legislation should be amended so that the penalty is not charged on amounts of $100 or less to ensure that it is consistent with other similar provisions.
Recommendation
That the submission be accepted.
Issue: Imposition of penalties and interest on amounts of $100 or less
Submission
(Matter raised by officials)
Section 183F should be amended to apply on a tax-type basis rather than to the total amount outstanding.
Comment
Under section 183F, small amounts of penalties and interest are not charged. Officials also consider that the provision should be amended to apply on a tax-type basis rather than the total amount outstanding. This would still reflect the intention of the provision, which is that small amounts of penalties and interest are not charged but ensure that separate taxes are considered separately. Similar amendments should also be made to the late payment penalty and use-of-money interest provisions.
Recommendation
That the submission be accepted.