Provisional Tax and Use of Money Interest Changes
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Articles by John Rowe.
To assist taxpayers through the recession, the Government has moved to provide some cash flow relief by reducing provisional tax uplift provisions and its use of money interest charges. The changes are available for the 2009 and 2010 income years and are effective from 1 April 2009. For the 2011 and subsequent years’ provisional tax, the old uplift rules will apply again.
The new uplifts are as follows. (Note: RIT or residual income tax is the tax you have to pay after any rebates and tax credits are deducted. i.e. it is essentially your year end tax.)
Individuals
Provisional tax instalments have been amended to take into account the changes in the tax rates.
| 2009 Provisional tax | 2010 Provisional tax |
|---|---|
| Uplift based on 2007 year is 2007 RIT minus $730 plus 5% | Uplift based on 2009 year is 2009 RIT minus $730 |
| Uplift based on 2008 year is 2008 RIT minus $730 | Uplift based on 2008 year is 2008 RIT minus $1,460 plus 5% |
Companies
The new rates take into account the reduction in the corporate tax rate to 30 per cent from 1 April 2008 (the 2009 tax year for the majority of taxpayers).
| 2009 Provisional tax | 2010 Provisional tax |
|---|---|
| Uplift based on 2008 RIT is 90% of 2008 RIT | Uplift based on 2009 year is 100% of 2009 RIT |
| Uplift based on 2007 year is 95% of 2007 RIT | Uplift based on 2008 year is 95% of 2008 RIT |
Trusts (other than specific Unit Trusts)
| 2009 Provisional tax | 2010 Provisional tax |
|---|---|
| Uplift based on 2008 RIT is 100% | Uplift based on 2009 RIT is 100% |
| Uplift based on 2007 RIT is 105% | Uplift based on 2008 RIT is 105% |
Use of Money Interest Rates (from 1 March 2009)
| Previous | Current |
|---|---|
| Underpayment 14.24% | Underpayment 9.73% |
| Overpayment 6.66% | Overpayment 4.23% |
Note: for the 2010 income year the "safe harbour" for the application of use of money interest for individuals has been moved from less than $35,000 RIT (approximately $114,000 of untaxed income) to less than $50,000 RIT (approximately $152,000 of untaxed income).
Estimation and ratio options
Remember you may also base provisional tax on an estimation of your income. Also the ratio option will apply to certain clients.
Need help?
Meeting your taxation obligation should be easy. Unfortunately, the provisional tax regime has become complicated by recent changes and it is very easy to incorrectly calculate your tax payments resulting in unnecessary interest and penalties. Remember to talk to us at GRA if you require any assistance with provisional tax or if you are unsure.
John Rowe
Retired Partner, Consultant to GRA
© Gilligan Rowe & Associates LP
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Disclaimer: This article is intended to provide only a summary of the issues associated with the topics covered. It does not purport to be comprehensive nor to provide specific advice. No person should act in reliance on any statement contained within this article without first obtaining specific professional advice. If you require any further information or advice on any matter covered within this article, please contact the author.
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