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Changes to Provisional Tax Rules - April 2017

Provisional Tax

From the 1st April 2017, or balance date, there has been great changes to provisional tax. The thresholds for companies trusts and individuals have been lifted from $2,500 to $60,000. In addition, interest for all tax payers will only apply for tax payers with residual tax over $60,000, from the third instalment date, and will run until the tax is paid. Tax payers with residual tax below $60,000 will, under normal circumstances, not pay interest.

We set the basic position as follows:

Provisional Tax Changes from 1st April 2017

Previous Rules:

Use of money interest applied if residual income was over for

  1. Individuals $50,000
  2. Companies $2,500
  3. Trusts $2,500 (on trustees Income)

This was applied at a current rate of 8.33% per annum from the first instalment due for that year’s provisional tax.

For example 31st March 2017 Balance Date from:

            28th August 2017

            15th January 2018

            7th May 2018

In addition, penalties applied for late payment of standard uplift payments. These payments could be reduced by purchasing tax from a tax pooling intermediary who charged about 6%, but could back date payments to reduce interest and penalties if paid by the final date.

New Rules:

Provisional Tax threshold for interest charges is now $60,000 residual tax for Individuals, Companies and Trusts from 1st April 2017 or equivalent balance date.

Those tax payers with residual tax over $60,000 will have interest charged from the final instalment date (7th May 2018 for a March balance date).

Requirements to pay provisional tax remain as follows:

  1. 10% uplift on previous years residual tax (2016) where a tax return for 2017 has not been filed.
  2. 5% uplift on 2017 residual tax where a return has been filed.

There are some new provisions regarding anti avoidance to stop companies, trusts and individuals chopping and changing to get the benefit of this, and leaving money in the company and in the next year paying it as salaries or trust distributions. As long as a consistent approach is made, there are considerable savings and less administration work for a large number of tax payers. Those with residual income tax will generally be able to pay a best estimate on residual income tax likely to be over $60,000, as quickly as possible.

Tax can also still be purchased at a later date through a tax intermediary whose interest rates are about two thirds of those of Inland Revenue.

This change is great news as there are companies and trusts currently with residual income that have been previously caught with use of money interest as a result of residual income tax over $2,500. It will mean use of money interest will only apply after the normal due date, except where residual income tax is over $60,000 and the interest rate will commence on the last day for provisional tax payment.

Notice Regarding 7 April Tax

Note: Tax payers are likely to get two Tax reminders, one from the Inland Revnue and one from Bailey Ingham Ltd

Important message for Tax Agents

7 April Due Date – Update for Tax Agents

Inland Revenue has been improving the way we collect overdue debt for some time now. We’ve also been working to understand why people go into debt and have developed some initiatives to increase on time payment.

We value our relationship with the tax agent community and the important work you do supporting your clients to meet their tax obligations. However, the ultimate responsibility for paying on time rests with each individual.

We continue to see high numbers of people who miss the 7 April due date and have received feedback that customers are not always aware of their 7 April payment obligations. We’ve successfully increased the compliance of customers with payments due on 7 February by sending reminders before this due date. So, we’ll use the same approach to support customers with payments due 7 April 2018.

In 2017 we issued around 113,000 reminder letters and 5,000 text messages direct to customers with a 7 April liability. These customers had already filed their return, and had it processed by us. Our evaluation of this activity showed that more people paid after receiving the reminder letter, than those who had received only a text message. This is consistent with our findings around similar events.

In 2018 we plan to send reminder letters directly to customers who have filed their 2017 Return and have a liability to pay by 7 April 2018. We won’t include any customers who are owed a refund, or have paid their liability.

Additionally, we will also be making it clear for those who have short paid or underpaid provisional tax that it is accruing interest. This messaging aligns with feedback received from Tax Representatives that customers would like a higher degree of visibility and understanding in respect to their provisional liabilities and payments.

We will also be issuing a text message reminder to those customers we don’t send a letter to. These will be issued on 14 and 15 March. We will endeavour to text the customer rather than their representative however, if an agent’s mobile number has been added to a customer’s account, the agent is likely to receive the reminder text. Each mobile number should only receive one text message.

After the 7 April due date, as in past years, we will follow up with those who have not paid, especially where we know their tax agent has had earlier Classified Public

notification from us and we have not yet had any contact from either the agent or the customer. Our goal is to help customers resolve their debt situation as soon as possible. This helps minimise the effect of penalties and interest, which can quickly add up.

Inland Revenue has the ability to identify customers who have previously paid their 7 April liability through utilising tax pooling funds. We will exclude these customers from reminder letters and follow up recovery actions. Unless advised, we will not be able to exclude a customer who is utilising the taxing pooling service for the first time.

Customers who have successfully met their income tax obligations through paying on time or through using tax pooling funds in previous years are entitled to receive a Grace Period for their 7 April obligations. We are unable to prevent these Grace Period letters from being issued.

To assist in ensuring the reminder letters being issued have the correct balances due, please complete any credit transfers in relation to 7 April obligations on your clients account before Friday, 9 March.

Contacting us

You can contact Inland Revenue by:

 sending us a secure email

 phoning Inland Revenue’s tax agent line on 0800 377 779

You can also apply online for an instalment arrangement for any clients having difficulty paying.

7 April website available

You are welcome to share the link to Inland Revenue’s 7 April website with clients who might benefit from this information: www.ird.govt.nz/7April.

Kind regards

Richard Philp

Manager, Inland Revenue

Tax Payments

The simplest way to make payments to the Inland Revenue Department is by paying online. Make sure you select the correct IRD number, Tax Type and Tax Period when you make the payment.

Please let our tax team know that you have made the payment directly to the IRD by emailing our tax team (This email address is being protected from spambots. You need JavaScript enabled to view it.) or contacting Leanne Cameron or Sarah Hickey on 07 873 7325.

Here is a link to the IRD website which has links to the major banks for matching tax payments. You will need to be set up for internet banking to utilise this service. www.ird.govt.nz/makepayment/ , www.ird.govt.nz/makepayment/internet-banking

Secondary Tax – Are you paying too much?

Our office often receives calls from employees and their employers concerned about the effect of secondary tax when they are getting a second job.  People are generally unhappy about the idea of having to a higher rate of tax just because they have got themselves a new source of income to help pay the bills.

The good news is that it is a common misconception that people pay a higher rate of tax when they get a secondary tax code. New Zealand’s tax and PAYE system is designed so that employees are taxed at the correct rate. We have a progressive tax system so that individuals pay a higher rate of tax as they earn more. Our current tax rates for individuals are as follows:

$0 - $14,000 – 10.5%

$14,001 - $48,000 – 17.5%

$48,001 - $70,000 – 30%

$70,001 + – 33%

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