Following an Inland Revenue audit of Griffin Manufacturing Ltd of the income tax return for the year

Fantastic news! We've Found the answer you've been seeking!

Question:

Following an Inland Revenue audit of Griffin Manufacturing Ltd of the income tax return for the year ended 31 March 2020, and the GST return for the two month period ended 31 March 2020, the following errors and reasons for the errors were identified:

GST Return:

- Understatement of outputs by $32,000 (excluding GST) due to gross carelessness.

- Inputs claimed without tax invoices (received by the next GST return period) of $4,800 (excluding GST) due to not taking reasonable care.

- Failure to adjust for services provided to shareholders for non-business use of $27,300 (excluding GST). This was a deliberate failure for which civil evasion was present.

Income Tax Return:

- Overstatement of deductible expenditure by $19,000 due to gross carelessness.

- Overstatement of deductible expenditure by $11,300 due to lack of reasonable care.

- Understatement of gross income by $186,000 due to civil evasion (the taxpayer made a voluntary disclosure to the Inland Revenue Customer Compliance Specialist during the initial audit interview).

- There was also an understatement of deductible expenditure of $13,300 due to an arithmetical error.

Assume that Griffin Manufacturing Ltd do not challenge the errors and associated penalties. You are aware that Griffin Manufacturing Ltd was audited in 2016 for FBT with no penalty imposed. Griffin Manufacturing Ltd was also audited in August 2019 for GST with penalties for gross carelessness and for civil evasion being imposed. In addition, Griffin Manufacturing Ltd were audited for income tax in 2002 with a penalty for income tax civil evasion being imposed.

REQUIRED:

(i) What are the shortfall penalties that will be payable by the company? Show all calculations in whole dollars only.

(ii) What would be the consequences if Griffin Manufacturing Ltd did not pay the tax shortfall or associated penalties by the new due date?

(iii) Mr Griffin, the managing director of Griffin Manufacturing Ltd, has asked why the previous behaviour reduction period for GST is only two years and yet is four years for income tax.