Mr's short answer
An IRD default assessment is Inland Revenue's estimate of the tax you owe when a GST or income tax return hasn't been filed. It's usually higher than your real bill, and paying it doesn't cancel the return. File the overdue return as soon as you can. To formally dispute the estimate, file the return with a notice of proposed adjustment within four months of the assessment date.
Key points
- IRD says a default assessment will, in most cases, be higher than what you actually owe.
- Paying the estimate doesn't end it: you still have to file the overdue return.
- To dispute it, you must file the return and a NOPA (IR770), generally within four months of the assessment date.
- Late filing penalties sit on top: $50 or $250 per GST return, and $50 to $500 for income tax depending on net income.
- Lenders treat an estimated IRD balance as an unknown. Replacing it with a filed return is the single most useful step before you borrow.
An IRD default assessment is Inland Revenue’s estimate of your tax when a GST or income tax return hasn’t been filed. It’s usually on the high side, and paying it doesn’t make the return go away. The fix is to file the overdue return so the real figure replaces the guess. To formally dispute the estimate, the return and a notice of proposed adjustment need to reach IRD within four months of the assessment date.
Mr hears this one a lot, usually in a slightly sheepish voice. The bookkeeper left, the busy season ran over, a return slid. Then myIR shows a tax bill that looks like it belongs to a much bigger business. Here’s what that number is, what to do this week, and how a lender reads it if you need finance to tidy things up.
What is an IRD default assessment, exactly?
When a return isn’t filed by its due date, Inland Revenue can estimate the tax for that period itself. Its filing overdue returns page calls this estimate a “default assessment”.
Three things about it surprise owners:
- It’s built to be high. IRD’s own GST guide (IR375, March 2026) says “in most cases, this amount will be higher than what you actually owe.” The point is to get the return in.
- It’s real tax owing until you replace it. It sits on your account like any other balance. Penalties and interest can build on it, and IRD’s collections team treats it as debt.
- Paying it doesn’t finish the job. The same guide says you still have to file the overdue return, even if you pay the estimate. Once IRD has the real return, it works out the actual amount, plus penalties and interest.
Mr says: A default assessment is IRD saying, “We haven’t heard from you, so here’s our guess.” The quickest way to make the guess go away is to send them the real numbers.
IRD estimated my GST. What should I do first?
Work through it in this order. The sequence matters, because each step makes the next one easier.
- Find out exactly which returns are missing. Log in to myIR and list every unfiled GST period and income tax year, not just the one on the letter. Default assessments often come in clusters.
- Note the assessment date. Diary a date four months on. That’s your formal dispute window (more below).
- Get the overdue returns prepared and filed. Hand your accountant the bank statements, sales records and receipts for each period. If records are thin, say so now. Reconstructing a year takes longer than one GST period.
- Keep current returns on time. Don’t let next month’s GST become the next default assessment. Our tax due dates tool lays out what’s coming.
- Once the real balance shows, sort out payment. That could mean paying it, an instalment arrangement, finance, or a mix.
If IRD has already been in touch by phone, our guide to the first week after IRD calls about your debt covers that conversation.
How do I dispute a default assessment?
You file the return and a notice of proposed adjustment, together. IRD’s disputes guide (IR776) is blunt about it: if you haven’t filed and the Commissioner makes a default assessment, you must file the outstanding return and send a NOPA for that assessment, “otherwise you can not dispute” it.
The timing rule is the usual one for disputing an IRD assessment: the NOPA (form IR770) generally needs to reach IRD within four months of the date the assessment was issued. Miss that and it can’t be considered unless exceptional circumstances apply.
| What you do | What it achieves | Watch for |
|---|---|---|
| Pay the estimate, never file | Nothing final. IRD still wants the return | You may pay far more than you owe |
| File the return within four months, with a NOPA | Keeps your formal right to dispute the estimate | The return must be complete and accurate |
| File the return after four months | IRD can still work out the real figure from it | You’ve lost the formal dispute route, so correction depends on IRD |
| Ignore it | IRD starts recovery action and may go to court | Penalties and interest keep building |
In practice, many owners find that once a proper return lands, the estimate is replaced by the real figure without much argument. The NOPA protects you if it isn’t. That’s a call for your accountant, and it’s worth making before the four months run out. If the dispute turns into a back-and-forth, the process works much like the one in our notice of proposed adjustment guide.
What penalties and interest come with it?
The default assessment itself isn’t a penalty, but the late return usually brings one. According to IRD’s late filing penalties page:
| Return | Late filing penalty |
|---|---|
| GST, payments basis | $50 per return |
| GST, invoice or hybrid basis | $250 per return |
| Income tax, net income under $100,000 | $50 |
| Income tax, net income $100,000 to $1 million | $250 |
| Income tax, net income over $1 million | $500 |
For income tax, IRD charges $50 first and adjusts it once the late return shows your actual net income. On GST, IRD’s penalties guide (IR240, March 2026) says you’ll get a warning letter rather than a penalty if all your GST returns in the previous 12 months were on time.
Then there’s the tax itself. Unpaid tax attracts late payment penalties of 1% the day after the due date and 4% seven days later, plus daily interest. Those charges are worked out on the real balance once the return is in, so the sooner you file, the sooner you know the true damage.
Not sure where the business stands overall? Our funding readiness check takes a few minutes and flags what a lender will ask about first.
Can I get a business loan with a default assessment on my account?
Mr’s honest answer: usually not yet, and here’s why.
A lender looking at your tax position wants to know one number: what do you really owe IRD? A default assessment can’t answer that. It might be twice the real figure, or close to it, and nobody knows until the return is filed. A lender won’t size a loan to clear an estimate, and it won’t ignore a large balance sitting in myIR either.
Here’s how a lender typically reads the two situations:
| Default assessment showing | Return filed, real debt showing | |
|---|---|---|
| Size of the tax bill | Unknown, likely overstated | Known |
| Can a loan be sized to clear it? | No | Yes, if the numbers work |
| What it says about the business | Paperwork is behind | Paperwork is caught up, cash is the issue |
| Likely lender response | “Come back when it’s filed” | Case-by-case assessment |
That’s the same logic as our page on whether you need tax returns filed to borrow: lenders can work with a known debt, but they struggle with an unknown one.
Once the real balance is showing, the picture changes. Mr’s lenders consider property-secured business loans from $20,000 to $5,000,000 against residential or commercial property, and unsecured options for trading businesses, typically $5,000 to $500,000, sized on turnover and bank statements. IRD debt is looked at case by case, and clearing it is often the reason for the loan. Our page on getting a business loan with an IRD debt explains what lenders weigh up.
If your accountant is already on the returns and you want to know what’s possible once they’re in, check your options with Mr now. Asking costs nothing and leaves your credit file alone.
Mr says: “We’re three weeks from filing, here’s the accountant’s draft figure” is a conversation a lender can start. “IRD has guessed and we haven’t looked” isn’t.
Illustrative example: an Invercargill joinery company
This example is invented to show how the steps fit together.
A small joinery company in Invercargill has two GST periods and one income tax return outstanding after its office manager leaves mid-year. Months later, myIR shows default assessments for both GST periods and the income tax year, adding up to roughly double what the directors suspect is really owed.
Here’s what they do:
- Week one: they list every missing return in myIR, note the assessment dates and diary the four-month deadline. Their accountant asks for bank statements and the job-costing spreadsheet.
- Weeks two to six: the GST returns are filed first because they’re quicker. The income tax return follows, with a NOPA sent alongside it in case IRD doesn’t simply replace the estimate.
- Week eight: the real figures are in. The GST late filing penalty for one period is a warning letter, because the company’s record was clean before. The real tax owed, plus penalties and interest, is well below the estimates, but it’s still more than the business can pay from cash before its busy season.
With a filed position to show, the directors talk to a lender about a modest second mortgage over one director’s home to clear the balance in one go, and they move the bookkeeping to a monthly outsourced service so it doesn’t happen again.
What’s the mistake that costs the most?
Paying the estimate and moving on. It feels responsible, but it can mean handing over far more than you owe, while the return is still outstanding and IRD still wants it. The next most expensive mistake is waiting past the four-month window, which leaves you relying on IRD to correct the figure rather than having the formal right to dispute it.
Ask Mr once the real number is in sight
A default assessment is a paperwork problem first and a money problem second. Get the returns moving, and you’ll soon know what you really owe. That’s the moment when knowing your funding options takes the pressure off, whether you need a little help or a lot.
Mr helps business owners with IRD balances every week, including ones that started life as an estimate. The enquiry takes about a minute, and asking won’t touch your credit score. We don’t send your details to a pile of lenders, so you won’t be fielding calls from people you’ve never heard of. A real person reads what you’ve told us and phones you to talk it through.
Do help us help you: fill in the form accurately. Mention the default assessments, which returns are still outstanding, roughly what your accountant thinks the real figure is, and any property you own. Straight answers mean the first option we put in front of you is the right one.
Frequently asked questions
What is a default assessment from IRD?
It's Inland Revenue's estimate of the tax you should pay when you haven't filed a return by the due date. IRD's GST guide says that in most cases the estimate will be higher than what you actually owe. It stays on your account as tax owing until you file the real return.
If I pay the default assessment, do I still have to file?
Yes. IRD says you still have to file the overdue return even if you pay the default assessment. Once the return is in, IRD works out the actual amount, plus any penalties and interest. If you've paid more than the real figure, the difference should come back to you or go against other tax.
How do I dispute an IRD default assessment?
File the outstanding return and send a notice of proposed adjustment (IR770) for the default assessment. IRD's disputes guide says you can't dispute a default assessment without doing both, and the NOPA generally has to arrive within four months of the date the assessment was issued.
What happens if I ignore a default assessment?
IRD says it will start recovery action to collect the estimated amount, keep adding penalties and interest, and may take you to court. The estimate is treated as real tax owing until you replace it, so ignoring it lets an inflated number grow.
Can I get a business loan with a default assessment on my account?
Sometimes, but the honest answer is usually 'file first'. A lender can't size a loan to clear a tax bill when the bill is an estimate. Once the return is filed and the real balance shows in myIR, property-secured and some unsecured lenders will look at IRD debt case by case.
Does a GST default assessment come with a late filing penalty too?
It can. IRD charges $50 for each late GST return on the payments basis and $250 on the invoice or hybrid basis. If all your GST returns in the past 12 months were on time, you'll usually get a warning letter instead of a penalty for the first late one.