Some key changes have been made for the Provisional Tax Rules for tax years 2018 onwards.
You will still need to pay your 1st (28/08/2017) and 2nd (15/01/2018) Provisional Tax Payments on time.
For the 3rd Provisional Tax (due 07/05/2018) if your Residual Income Tax i.e. Total Tax for the year works out to be:
Less than $60K
You still have to pay the 3rd provisional tax on/or before 07/05/2018.
You are not subject to any Use of Money Interest until your terminal tax is due i.e. 07/02/2019.
More than $60K
You still have to pay the 3rd provisional tax on/or before 07/05/2018.
You are subject to paying Use of Money Interest for any underpayments of your total tax from 07/05/2018.
At Intel Accountants – Chartered Accountants Auckland we offer advice is layman terms so can understand your obligations in simple non-jargon speak.
Practical Examples
Total Tax Less Than $60K
– Jane Doe is a provisional taxpayer with a March balance date that pays provisional tax in three instalments. Her total provisional tax for the year works out to be $45,000 payable in 3 instalments of $15,000 each.
– Jane Doe makes a $15,000 payment on 28/08/2017, 15/01/2018 and 07/05/2018 respectively.
– In April 2018, when the accounts are completed by the Accountant, it turns out that the total tax works out to be $57,000 for the year.
– Because Jane Doe, has already paid $45,000 AND her total tax is less than $60,000 (i.e. $57,000), she has to make her terminal tax payment ($57,000 less $45,000 = $12,000) by the 07/02/2018.
– Her Use of Money Interest (UOMI) will only be applicable on any balances outstanding on the $12,000 from 07/02/2019.
Total Tax More Than $60K
– Joe Bloggs is a provisional taxpayer with a March balance date that pays provisional tax in three instalments. His total provisional tax for the year works out to be $90,000 payable in 3 instalments of $30,000 each.
– Joe Bloggs makes a $30,000 payment on 28/08/2017, 15/01/2018 for the 1st and 2nd Provisional taxes.
– In April 2018, when the accounts are completed by the Accountant, it turns out that the total tax works out to be $107,000 for the year.
– Because Joe Bloggs total tax for the year is greater than $60,000, he has to pay the difference $107,000 less two payments of $30,000= $47,000 on the 3rd Provisional Tax due on 07/05/2018.
If Joe Bloggs DOES make the $47,000 payment on 07/05/2018, AND he has made the 1st and 2nd Provisional Tax Payments on time, he will NOT be subject to Use of Money Interest (UOMI).
If Joe Bloggs makes a partial payment of $40,000 on 07/05/2018, AND he has made the 1st and 2nd Provisional Tax Payments on time, he will be subject to Use of Money Interest (UOMI) on $7,000 underpayment from 07/05/2018 i.e. ($107,000 less $100,000 = $7,000)
If Joe Bloggs makes a make a full payment the $47,000 payment on 07/05/2018, AND he has made the 1st and 2nd Provisional Tax Payments on time, he will be subject to Use of Money Interest (UOMI) on any underpayment from 07/05/2018.
Learn more about calculating provisional tax at the IRD website by following this link.
Or simply contact us so we can advise on your specific situation and tax returns. Remember all our business accounting packages include free tax payment reminders and calculations so that you are always paying correctly and on time.
