You are a Chartered Accountant in the accounting firm Equilibrium Accounting and Advisory Limited (EAA). Your client is Courtyard Properties Limited (CPL), which holds a commercial rental property portfolio in central Christchurch. CPL is a New Zealand tax resident company.

CPL is on EAA's tax agency list to benefit from the tax agents' extension of time with Inland Revenue but prepares its own financial statements and files its own tax returns. Each year, EAA provides a high-level review of CPL's tax returns and financial statements. Liz Farnham is one of CPL's directors and performs its administration and bookkeeping tasks.

When reviewing the tax return for the income year ending 31 March 2024, you notice that CPL has included in its expenses a lump sum payment of $300,000 to one of its new lessees. You query the nature of the payment, and Liz advises that it is a lease incentive payment for a new 10-year lease. Liz states that she has done research on lease inducement payments and found notes from her business studies in the early 2000s that these payments are deductible for the landlord. You correctly advise Liz that the deduction must be spread over the life of the lease, rather than taken in full for the 2024 income year. However, Liz insists that she's researched the issue and wants CPL to claim the full deduction in the 2024 income year.

If this position is taken, the amount of the tax shortfall in the 2024 income year would be $75,600. CPL's total income tax liability, as disclosed in its tax return, is $2,800,000 for the 2024 income year.

Required:

(a) Explain the most likely shortfall penalty that CPL could be liable for if it takes the full deduction for the lease incentive payment. Calculate the value of the penalty. Note: you are not required to consider any potential reductions or increases in shortfall penalties based on the taxpayer's behaviours or actions.

(b) Identify one (1) relevant fundamental principle of the NZICA Code of Ethics that you need to consider in reviewing CPL's income tax return, and briefly explain how it applies to this scenario

For reference, refer to Income Tax Act 2007 https://www.legislation.govt.nz/act/public/2007/0097/latest/DLM1512301.html