Provisional Tax Amendments – effective 2017/18 Financial Year

Some major amendments have been made to provisional taxes recently.

Timely payments are still required for your first and second provisional tax payment.

However, for the third Provisional Tax – there are some significant amendments coming into effect.

Under $60K   

You are required to pay the third provisional tax prior 7th May.

No Use of Money Interest applies to you until your terminal tax is due i.e. 7th February.

Over $60K

You are required to pay the third provisional tax prior 7th May.

Any underpayments of your total tax are subject to paying Use of Money Interest from 7th May.

Intel AccountantsChartered Accountants Auckland  offer simple easy to understand advice. Our advice is specific to your situation and consider various factors.

Examples

Total Tax Under $60K

–       Business owner, a provisional taxpayer with a March balance date paying in three provisional tax instalments. Her total provisional tax for the year works out to be $30,000 payable in 3 instalments of $10,000 each.

–       Business owner makes a $10,000 payment on 28th August, 15th January and 7th May respectively.

–       In April once the Accountant has completed the accounts, the total tax works out to be $42,000 for the year.

–       Because Business owner, has already paid $30,000 AND her total tax is less than $60,000 (i.e. $42,000), she has to make her terminal tax payment ($42,000 less $30,000 = $12,000) by the 7th February 2018.

–       Use of Money Interest (UOMI) will only be applicable on any balances that remains unpaid on the $12,000 from 7th February.

Total Tax Over $60K

–       Business owner II is a March balance date based provisional tax payer paying tax in three instalments. His total provisional tax (based on last year’s calculation) works out to be $75,000 payable in 3 instalments of $25,000 each.

 

–       Business owner II makes a $25,000 payment on 28th August, 15th January for the first and second Provisional taxes.

–       In April, when the Accountant completes the accounts, it the total tax works out to be $93,000 for the year.

–       Because Business owner II has total tax greater than $60,000, this means he is required to pay the difference ($93,000 less two payments of $25,000= $43,000) on the third Provisional Tax due on 7th May.

3 Scenarios Follow:

Business owner II DOES make the $43,000 payment on time on the 7th of May, AND he has made the first and second payments on time, NO Use of Money Interest (UOMI) applies.

If Business owner II makes a partial payment of $40,000 on 7th May, AND he has made the first and second Provisional Tax Payments on time, he will be subject to Use of Money Interest (UOMI) on $3,000 underpayment from 7th May i.e. ($93,000 less $90,000 = $3,000)

If Business owner II makes a make a full payment the $93,000 payment on 7th May, AND he has paid the first and second Provisional Tax Payments by the due date, he will only be incurring Use of Money Interest (UOMI) on any underpayment from 7th May.

Learn more IRD website by following this link.

Intel Accountants offers contractor accounting services in different sectors. Our business accounting packages include tax payment reminders and provisional tax calculations so you are paying what you owe on time and not getting penalised. Contact us for more information about tax and tax returns.

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