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Mahoney Accounting For Negotiating New Laws On Provisional Tax

Thursday 23 June 2016, 9:28AM

By Beckie Wright

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For anyone who has started a new business or partnership, registered a new company or purchased a rental property, is self-employed or receives income from a trust, estate, or from overseas and needs advice from an accountant, they should contact Mahoney Accounting at who will be happy to help them manage their business and plan for the future, including helping them to understand and be prepared for their tax and other accounting obligations. 

Changes to the laws on provisional tax and other tax changes have recently been announced and small to medium businesses with turnover less than $5 million will benefit.  The main change is the elimination/reduction of use-of-money interest (UOMI) from 1 April 2018.  UOMI is interest paid/received on the difference between the amount of provisional tax paid and the actual amount of tax liability a business owes.

Currently businesses estimate the amount of tax they think they will pay for the coming year and pay that amount in three instalments. A new option will allow businesses to stop estimating and pay tax throughout the current year. Every two months the new software will calculate taxable income for that period and prompt businesses to pay what they actually owe, generally at the same time as paying GST.

Mahoney Accounting’s clients need not do anything as their Xero software will calculate the amount of provisional tax to be paid when they process the GST every two months. Small to medium businesses should find paying provisional tax easier to deal with and their cash flow should also improve. Instead of guessing the amount to be paid in the future, the software will work out the actual amount to be paid on a 2 monthly basis.

From 1 April 2017 contractors will also be able to choose a withholding rate that suits their individual needs, instead of the tax rate being fixed, and for new debts after 1 April 2017, the 1% ongoing monthly penalty will no longer exist for income and provisional tax, GST and some other penalties. However, the immediate penalty that applies to late payments, and the 4% penalty after a further week, will continue to apply.

The remaining changes include increasing the RIT (Residual Income Tax) limit of $50,000 before UOMI is imposed to $60,000 and extending this 'safe harbour' rule to non-individual taxpayers (RIT is the amount of tax left to pay on your last tax return); removing UOMI for the first two provisional tax instalments for all taxpayers who use the standard method (5% uplift) to calculate and pay provisional tax; allowing closely held companies to pay provisional tax as agents in relation to the salaries of their shareholder-employees, requiring labour-hire firms to withhold tax from payments made to contractors and simplifying the calculation of deductions for dual use vehicles and premises.

To keep up to date with the latest tax and accounting pronouncements and changes go to http://www.mahoneyaccounting.co.nz.