Nz Provisional Tax Rules
When the taxpayer files his or her income tax return for the year, the provisional tax paid for that year is deducted from the tax assessed. This will result in a refund or other tax payable as final tax. Taxpayers can also make voluntary payments. However, if the provisional tax is paid according to the standard method in the first and second installments, exposure to UOMI is minimized. The second significant change concerns taxpayers who are not covered by the $60,000 safe harbour rule. For taxpayers who are not within the safe harbor $60,000 threshold, the UOMI will only apply from the third provisional tax payment date, provided they make payments on the first and second dates based on the standard increase. Effective May 8, 2020, the overpaid tax rate will be 0% and the underpaid tax rate will be 7%. Interest is generally calculated from the due date of the third instalment of provisional tax if the taxpayer has paid the first and second installments using the standard method. Interest paid is deductible for both businesses and individuals, while interest received is taxable. One of the key elements of the safe harbor rule is the obligation to pay provisional taxes on the basis of the standard increase. The standard mark-up assumes that the amount of RRT a taxpayer will have to pay will be slightly higher than last year.
It corresponds to 105% of the previous year`s ITL or 110% of the previous two years. Second Amendment – Application of Interest on Monetary Use (UOMI) In the past, we could have used the estimation method in this situation, but today there is a reluctance to submit estimates in order to reduce provisional tax liabilities, because the use of monetary interest is then calculated from the first payment and not from the third installment. The amount of provisional tax you pay is based on your expected profit for the year. There are four ways to calculate it. Taxpayers can combine their interim tax payments with those of other taxpayers through an agreement with a commercial intermediary. Tax pooling offsets shortfalls with overpayments within the same account and vice versa. Tax consolidation provides more favourable interest rates for taxpayers and greater flexibility. A: The government has increased the interim tax threshold for the 2020-2021 income year from $2,500 to $5,000. This means that for taxpayers whose 2020 ITB is less than $5,000, 2021 interim tax will not be payable at all. Instead, the liability for 2021 will mature in a single payment on the final tax date, which for most taxpayers will be February 7 or April 7, 2022. This can be an incentive to file the 2020 tax return as soon as possible so that a first payment on August 28, 2020 is not required.
Other options that may help manage preliminary tax payments include using a tax pooling intermediary (see below), downgrade estimation (noting that this option may impact UOMI), or investigating recently introduced loss carry-forward measures (see our separate article here for more information). Q: Can tax pooling help with upcoming interim tax payments? If 2017 tax returns are retained and filed in March 2018, which is the case at the latest with a tax agent, the tax payments due under the new rules are as follows: Under the new interest rules, starting with the 2018 taxation year, as long as a taxpayer has made interim tax payments in full and on time using the standard method, interest expense and debit will begin to accrue the day after the following day: A: Yes. If you have paid more interim taxes than necessary, you or your tax advisor can request that the excess taxes be transferred (before filing the 2020 tax return) to another taxpayer who is a «close associate». For example, an employee of the shareholder, a partner, a parent, a company of the same group, etc.). This could be the case if: New interim tax rules have come into effect for the 2018 taxation year. The two main changes not only simplify the interim tax rules, but also provide taxpayers with the opportunity to manage their interim tax obligations much more efficiently. Once the date of the third payment has passed, you can no longer estimate down. Therefore, the other option is to file the 2020 tax return as soon as possible once the IR system is deployed for the new tax year to access overpaid taxes, assuming your actual ITL will be less than the total amount of 2020 interim tax paid using the standard method. There are 4 options available to calculate your provisional tax. In your second fiscal year – e.g.
April 1, 2020 to April 31, 2020, March 2021 – however, you may have to pay provisional taxes. If your first final tax payable is more than $2,500, a provisional tax will be triggered – this means you will have to pay income tax for your second tax year in the second year – not a year later. It`s like paying as you go instead of paying after the fact. Inland Revenue takes the final tax and adds 5% – this is your provisional tax amount – and is usually due in 3 installments in your second year. If the actual results for 2021-2022 are lower, taxpayers may be reluctant to remit money to the IR to recover it when filing the tax return. In this case, one option is to pay the last installment based on the «expected ITL». In other words, taxpayers with more than 60,000 ITBs can pay up to the expected debt rather than the higher standard buoyancy amount. The theory is that by the time the final instalment of interim tax is due, taxpayers should have a good idea of what the actual liability represents for that year and should pay that amount. As long as the payment made is short, UOMI will be due on the difference. Default interest should not be charged, but it is worth informing IR of the intention to pay a lower expected IRR amount, otherwise the IR computer system will expect to receive full payment of the standard increase. While this option is required by law and represents a perfectly legitimate way to manage the last installment, our experience is that the IR system is not designed to detect them. The third payment for the company is a top-up payment to avoid a UOMI.
Under the previous rules, the total amount of taxes for the business would have had to be paid on each of the three payment dates, i.e. $20,907. This is a significant accrual accounting for cash flow purposes. When the UOMI rules were revised in 2017, taxpayers could only benefit from Safe Harbor treatment if all installments were paid on time and in full (a $20 tolerance was later introduced). This meant that if a taxpayer paid a rate of more than $20 late or too short, they would be subject to UOMI from the third installment. The good news is that the «full and on-time» requirement for interim tax payments has been lifted from 2023, i.e. next year. Officials believe that late payment penalties will be sufficiently dissuasive to encourage taxpayers to make timely payments.