On 1 April 2017, Inland Revenue made changes to the provisional tax rules as part of program to make tax simpler. For taxpayers that use the standard uplift method to pay provisional tax, interest changes will no longer apply from the first and second instalments. Instead interest will only apply from the third provisional tax instalment date.
To summarise the changes:
Small Taxpayers (Including Companies and Trusts)
If you have an income tax liability less than $60,000 per year then you can use the safe harbour provisions. Previously the safe harbour provision was $50,000 and only individuals could use it.
If you pay your provisional tax as per the standard method for all three provisional tax dates; and your income tax liability is less than $60,000;
You won’t be charged interest and any additional tax due will be payable on the terminal tax date.
Medium to Large Taxpayers
If your income tax liability is more than $60,000 and you pay provisional tax based on the standard method then;
Interest won’t be charged from your first and second instalments, even if your actual tax liability is higher. Instead interest will only apply on any underpayment or overpayment from the third provisional tax date. At the third instalment, it’s sensible to pay any remaining provisional tax due to avoid interest charges and you should have a good estimation of your actual liability by then.
If you have any questions on how the provisional tax changes will impact you, please contact us as soon as possible.