Taxpayers have found the provisional tax rules quite challenging, for companies and trusts you need to guess your end of year tax bill before the end of the year has finished. This has now become a little easier…
For most taxpayers whose financial year ends on 31st March their first instalment of provisional tax is due for payment at the end of August, only 4 months into the financial year. For non-individual tax payers (ie like companies and trusts) this meant that you needed to accurately forecast what you yearend taxable income was 8 months before it ended. Failure to get this right could exposure you to use of money interest and penalties.
Individual taxpayers have been able to use the standard method which bases their provisional tax obligations on the previous year.
From 1 April 2017 (2018 tax year) if a taxpayer (individual and non-individual) has Residual Income Tax (RIT) of less than $60,000.00 the standard option (ie based on the previous year) for calculation of provisional tax is available, meaning no use of money interest will be charged on provisional tax shortfall provided the payments based on the prior year and are paid on time.
Monthly Incremental Late Payment Penalties
As from 1 April 2017 the 1% monthly incremental late payment penalty will no longer be charged on:
• GST outstanding for periods ending 31st March 2017 and later
• Income Tax (including provisional tax) for the 2018 and later tax years.
• Working for Families overpayments for the 2018 and later tax years.