GST on Fines & Penalties
Navigating the boundary between statutory punishments and commercial fees. Knowing which 15% you can claim can save your business from costly audit adjustments.
The 10-Second Rule
If the payment is a **statutory penalty** (levied by law by the Crown), it is exempt from GST. If it is a **contractual penalty** (levied by a private business for a breach of terms), it usually includes GST. Always check for a GST number on the invoice.
The Claimability Filter
Issued by a statutory authority (The Crown) as a punishment.
- • IRD Interest & Penalties
- • Police Speeding Fines
- • Council Parking Tickets
- • Health & Safety Fines
Issued by a private entity for a breach of commercial contract.
- • Private Parking Breach Fees
- • Supplier Late Payment Fees
- • Merchant Surcharge Fees
- • Library Fines (if registered)
1. Why the Distinction Exists
Under Section 2 of the **GST Act 1985**, GST is only payable on a "supply" of goods or services. The IRD views statutory fines as a deterrent or punishment, not a service. Therefore, no taxable supply has occurred.
Conversely, when a private company charges a "fine" (like a late fee on a power bill), they are charging you for the administrative cost of processing your late payment—which is considered a service.
2. Common Non-Claimable Items
Interest for late payment and penalties for late filing are **Exempt**. You cannot claim a GST credit on these.
Police speeding tickets, red light cameras, or council-issued parking wardens. These are statutory charges.
Penalties ordered by the Employment Relations Authority (ERA) for breaches of employment law.
3. How to Code it in Xero / MYOB
When you pay a fine, you need to ensure the correct "Tax Rate" is selected to avoid over-claiming on your GST return.
Tax Rate: Exempt or No GST
Tax Rate: GST on Expenses (15%)
4. The Income Tax Connection
A common trap is assuming that if you can't claim GST, the expense isn't deductible for income tax. In New Zealand, the rules are even stricter for income tax:
- ❌ **Fines are NOT deductible**: Statutory fines (speeding, IRD penalties) cannot be claimed as an expense to reduce your income tax profit.
- ✓ **Interest IS deductible**: While you can't claim GST on IRD interest, you **CAN** usually claim the interest itself as an expense for income tax purposes.
The Audit Flag
The IRD often audits "Miscellaneous Expenses" or "Legal Fees" specifically looking for fines that have had GST claimed on them. These are easy targets for auditors because they are black-and-white violations of the GST Act.
Frequently Asked Questions
Generally no. Statutory tolls like the Auckland Harbour Bridge or Tauranga tolls are typically treated as statutory charges without GST.
This is complex. If the settlement is a "payment in lieu of a supply", it may have GST. Consult an accountant for any settlement over $5,000.
If a debt collection agency adds a fee to a government fine, that *agency fee* may include GST, even if the original fine does not. Look for a separate line item and GST number.
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