IR shortfall penalties almost double to 4,607 as carelessness fines hit $9m

Inland Revenue imposed 4,607 shortfall penalties in the year ended 30 June 2025, almost double the 2,392 recorded a year earlier. The statutory report to Ministers puts total shortfall penalties payable at about $16.5 million. Gross carelessness alone accounted for nearly $9 million of that total.

The count of gross-carelessness penalties rose 122 percent. Deloitte tax partner Robyn Walker, working from the same official tables, reported a 161 percent jump in their dollar value. Newsroom reporting on the paper cited a 166 percent value rise. Overall penalties payable rose only $981,823 year on year. The story is volume and mix, not a mega spike in fine dollars.

Gross carelessness became the most common shortfall penalty by number. Under the Tax Administration Act 1994, that category carries a 40 percent charge on the tax shortfall. Inland Revenue defines it as showing no care managing tax, little or no thought to consequences, and unreasonable behaviour that creates a high risk of shortfall. Intent is not required.

PAYE shortfall penalties surged 354 percent between 2024 and 2025. Walker linked the jump to Inland Revenue’s sharper payroll focus. GST still leads by case count because of frequent filing. Income tax continues to dominate by dollars.

Budget decisions funded the enforcement rebound. Budget 2024 added $29 million a year for compliance. Budget 2025 added $35 million in permanent funding and converted $26.5 million of time-limited money into ongoing baseline. Combined funded administration costs rise toward $79 million a year from 2026/27.

Commissioner Peter Mersi said the Budget 2025 investment was expected to return an additional $4 for every dollar invested in year one and $8 from year two. Half-year results already show higher casework. From July to December 2024 Inland Revenue opened 3,600 audits, up 50 percent on the same period a year earlier, and found $600 million of additional tax through audits.

Systems screened more than three million returns in that half-year and reviewed 30,000 of them. Audits, screening and voluntary disclosures together added $859 million. By 31 March 2025 year-to-date audit assessments reached $880.8 million. Cash debt collections hit $2,985 million, up from $2,688 million a year earlier.

Voluntary disclosure remains the main relief path. Post-notification voluntary disclosures jumped from 184 to 558. One taxpayer erased $3.8 million of potential fines by disclosing before audit activity began. Full pre-notification disclosure can wipe 100 percent of reasonable-care and unacceptable-position penalties and 75 percent of higher-tier ones, including gross carelessness.

Post-notification but pre-audit disclosure still cuts 40 percent. Prior good behaviour can halve many penalties. Inland Revenue refreshed its shortfall-penalty guidance in March 2026 with interpretation statements IS 26/03 through IS 26/09, including IS 26/06 on gross carelessness.

Penalty volumes remain below pre-COVID peaks. Deloitte tracking of the section 141L series shows counts peaked at 9,029 in the year ended 30 June 2017, then fell through Business Transformation and COVID customer-support diversion. From 1 July 2010 to 30 June 2021, 67,380 penalties totalled about $430 million after reductions.

Dollar values have always fluctuated with large abusive-position cases. In the year ended 30 June 2022 Inland Revenue imposed $22.1 million across only 1,887 penalties, versus $13.9 million across 3,431 the year before.

Macro-fiscally the fines are small next to the tax base. The Financial Statements of the Government for the year ended 30 June 2025 showed an OBEGALx deficit of $9.3 billion, or 2.1 percent of GDP. Net core Crown debt stood at $182.2 billion, or 41.8 percent of GDP. Total Crown revenue was $169.8 billion.

BEFU 2026 still projects an OBEGALx deficit of $11.9 billion, or 2.6 percent of GDP, in 2025/26. The government targets a return to surplus by 2028/29. Treasury and Inland Revenue forecast hundreds of millions in compliance revenue and reduced impairment from the Budget investment table, with a $341 million operating-allowance impact in 2025/26 and $526 million a year thereafter.

Shortfall penalties sit in Part 9 of the Tax Administration Act 1994. The ladder is not taking reasonable care at 20 percent, unacceptable tax position at 20 percent, gross carelessness at 40 percent, abusive tax position at 100 percent, and evasion or similar act at 150 percent. Unacceptable tax position penalties apply only to income tax and only where the shortfall exceeds both $50,000 and 1 percent of the taxpayer’s total tax for the period.

Australia’s comparable base bands are typically 25, 50 and 75 percent for failure to take reasonable care, recklessness and intentional disregard, doubled for significant global entities. New Zealand’s structure prices culpability differently but still rewards early honesty.

For New Zealand businesses the signal is clear. Budget-funded audit capacity is converting into more cases, especially in payroll, GST-heavy SMEs, property-backed debtors, trusts near the 39 percent rate, crypto and the cash economy. Advisers should treat the 2025 section 141L tables as confirmation that the post-COVID enforcement lull is over. Strong tax governance and early voluntary disclosure remain the practical defences.