Provisional Tax Rules - Tax Year 2018 Onwards

Provisional Tax Changes

Some key changes have been made for the Provisional Tax Rules for tax years 2018 onwards.
 
 
You will still need to pay your 1st (28/08/2017) and 2nd (15/01/2018) Provisional Tax Payments on time.
 
 
          For the 3rd Provisional Tax (due 07/05/2018) if your Residual Income Tax i.e. Total Tax for the year works out to be:
 
    • Less than $60K    
      • You still have to pay the 3rd provisional tax on/or before 07/05/2018.
      • You are not subject to any Use of Money Interest until your terminal tax is due i.e. 07/02/2019.
    • More than $60K
      • You still have to pay the 3rd provisional tax on/or before 07/05/2018.
      • You are subject to paying Use of Money Interest for any underpayments of your total tax from 07/05/2018.
 

Examples

Total Tax Less Than $60K

-       Jane Doe is a provisional taxpayer with a March balance date that pays provisional tax in three instalments. Her total provisional tax for the year works out to be $45,000 payable in 3 instalments of $15,000 each.

-       Jane Doe makes a $15,000 payment on 28/08/2017, 15/01/2018 and 07/05/2018 respectively.

-       In April 2018, when the accounts are completed by the Accountant, it turns out that the total tax works out to be $57,000 for the year.

-       Because Jane Doe, has already paid $45,000 AND her total tax is less than $60,000 (i.e. $57,000), she has to make her terminal tax payment ($57,000 less $45,000 = $12,000) by the 07/02/2018.

-       Her User of Money Interest (UOMI) will only be applicable on any balances outstanding on the $12,000 from 07/02/2019.

Total Tax More Than $60K

-       Joe Bloggs is a provisional taxpayer with a March balance date that pays provisional tax in three instalments. His total provisional tax for the year works out to be $90,000 payable in 3 instalments of $30,000 each.

-       Joe Bloggs makes a $30,000 payment on 28/08/2017, 15/01/2018 for the 1st and 2nd Provisional taxes.

-       In April 2018, when the accounts are completed by the Accountant, it turns out that the total tax works out to be $107,000 for the year.

-       Because Joe Bloggs total tax for the year is greater than $60,000, he has to pay the difference $107,000  less two payments of $30,000= $47,000 on the 3rd Provisional Tax due on 07/05/2018.

        • If Joe Bloggs DOES make the $47,000 payment on 07/05/2018, AND he has made the 1st and 2nd Provisional Tax Payments on time, he will NOT be subject to Use of Money Interest (UOMI).
        • If Joe Bloggs makes a partial payment of $40,000 on 07/05/2018, AND he has made the 1st and 2nd Provisional Tax Payments on time, he will be subject to Use of Money Interest  (UOMI) on $7,000 underpayment from 07/05/2018 i.e. ($107,000 less $100,000 = $7,000)
        • If Joe Bloggs makes a  make a full payment the $47,000 payment on 07/05/2018, AND he has made the 1st and 2nd Provisional Tax Payments on time, he will be subject to Use of Money Interest (UOMI) on any underpayment from 07/05/2018.
 
 

Missing a Provisional Tax Payment or Not Paying on Time

It should be noted that if a taxpayer doesn’t pay or makes an incorrectly calculated instalment (not being the final one) on or before its due date, then UOMI will apply.  The unpaid tax on which UOMI is calculated is deemed to be the lowest of:

UOMI will then apply on that unpaid amount from the relevant instalment date until the date the tax is paid.

Example

-       ACME has used the standard uplift method, it has not correctly paid an instalment on time.  The amount of unpaid tax that ACME has in relation to the second instalment is the lowest of:

      • -    the amount a taxpayer was liable to pay for that standard uplift instalment (i.e. $87,500) less the amount paid in relation to that instalment (i.e. nil); or
      •  -     1 divided by the number of instalment dates for the tax year multiplied by their actual RIT for the year (i.e. 1/3 x $270,000 = $90,000) less the amount paid in relation to that instalment (i.e. nil).

-       The lesser of these two amounts is the standard uplift liability that was due of $87,500 so UOMI will be calculated on this from the second instalment date of 15 January 2018 until it was paid on 28 March 2018.  It should also be noted that a late payment penalty would likely apply for missing the second payment and that no grace period operates when the late payment is a provisional tax payment.

How to download a CSV copy of your bank statement

How to download a CSV copy of your bank statement:
1) Log in to your online bank account.
2) Select the account you want to download the statement for.
3) Select the applicable dates.
4) Click on refresh data (note: some banks refresh it automatically).
5) Scroll down and see if the correct dates are displayed.
6) Click on "Export or Download"
7) Select file format - CSV dd/mm/yyyy.
8) Save the file to your computer.
9) Once saved - attach and email the file through to us.

Employee Deductions

 

PAYE Deductions

PAYE (pay as you earn) is the basic deduction made from an employees' wages. It includes an ACC earners' levy. PAYE deduction tables and an online calculator are tools to help calculate the amount to deduct.

 

Student Loan Deductions

You must make student loan repayment deductions for employees using a primary (main) tax code, when they earn above the pay period repayment threshold. If they are using a secondary tax code you must make student loan repayment deductions from all of their secondary earnings. You can also be asked to make voluntary or compulsory extra deductions.

 

Child Support Deductions

As an employer, you may need to make child support deductions from an employee's pay. If so, we will send you notice of the amount to deduct.

 

 

Superannuation Contributions

Employer superannuation contributions (formerly specified superannuation contributions) are made by an employer for an employee's benefit. They are subject to tax (ESCT, formerly SSCWT) which may be deducted at one of three different rates. Employer superannuation contributions are different to any deductions that an employee asks an employer to make from their wages to a superannuation scheme.

 

 

Kiwisaver

From 1 July 2007 employers must deduct employees' KiwiSaver contributions from their before-tax pay using the PAYE system. All employers must make KiwiSaver available to new staff, unless the employer qualifies for an exemption from automatic enrolment.

 

Tax Credits for Payroll donations

Tax credits for payroll donations are calculated for each employee who makes a donation using payroll giving. The amount of the tax credit is 33 1/3 cents for each dollar donation. This is reflected in the reduced PAYE payable.

Accounting Basis

Introduction

If you are registered for Goods and Services Tax (GST) you must account regularly to the Inland Revenue Department (IRD). The "accounting basis" is the method by which you account for GST. There are three options from which to choose:

  • the invoice basis
  • the payments basis
  • the hybrid basis

For information on registering for GST, see How to work out whether you must register for GST.

The "invoice" basis

Under this basis, you account for or claim GST for a transaction in the tax period in which the invoice is issued, as opposed to the period in which payment is received or made.

In general, you will be required to hold a tax invoice in order to claim a tax credit for transactions of more than $50 (including GST).

You will have to keep a list of debtors and creditors as at the end of each period. This is because you will have to show a record of items sold and received, and these will not be reflected in your cash statements.

The perceived advantage of the invoice basis is that, if you are the buyer, you can claim GST on a purchase before paying for it. Conversely, if you are the supplier the disadvantage is that you must account to the IRD for GST before receiving payment.

Even if you generally use the payments basis (see below), you are required to use the invoice basis to account for some major property transactions with delayed settlement dates. This applies to any single transaction in which you supply property or services of a value of more than $250,000 (including GST), if the settlement date, or the date when the services must be performed, is to be more than one year from the date of the agreement.

The "payments" basis (or "cash" basis)

Using this method involves accounting for GST for a transaction in the taxable period in which you make or receive payment.

As with the invoice basis, you will generally be required to hold a tax invoice in order to claim a tax credit for transactions of more than $50 (including GST). Unlike the invoice basis, you do not account for debtors and creditors at the end of each taxable period.

There are restrictions on who may use the payments basis. It can be used by any registered person if any of these criteria apply:

  • The total value of taxable supplies for the last 12 months was $1.3 million or less.
  • The total value of taxable supplies is not likely to be more than $1.3 million in any 12-month period beginning on the first day of any month.
  • The payments basis would be the most appropriate one to use, taking into account the nature, value and volume of taxable supplies and the accounting system used.

(The threshold amount of $1.3 million was increased from $1.0 million as of 1 October 2000.)

These criteria don't apply, however, to non-profit organisations and some local councils. These bodies can use the payments basis even if they don't satisfy any of these criteria.

The perceived advantages of the payments basis is that in supplying goods and services you need to account for GST only when you have received payment. Conversely, as a buyer you cannot claim GST on purchases until after you have paid the supplier. The payments basis is seen by the IRD as suitable for small businesses currently using the cash system, because their cash books can easily be amended to account for GST.

The "hybrid" basis

The third option is the hybrid basis, which can be used by any person or business registered for GST. As the name suggests, the hybrid system combines the invoice and payments system, in that the invoice basis is used to account for GST on your sales while the payments basis is used for your purchases.

Because the invoice system is used for your sales, you will need to keep a list of your debtors as at the end of the taxable period. Because the payments basis is used for your purchases, there is no need to keep a list of your creditors.

What if I don't notify IRD of the accounting basis I would like to use?

If you haven't notified IRD of the accounting basis you wish to use for your business, you will automatically be placed on the invoice basis.

 

A Guide to Starting A Business

So you have decided or are thinking about being in business yourself. Or perhaps you have seen an existing business that takes your fancy and have decided to purchase it.  

Well here is a simple guide to some of the key things that you need to consider when starting your own business.

 

Ownership Structure

There are four basic ownership structures (sole trader, partnership, limited partnership and company) that you need to consider.

While each has it's own merits, the one that is right for you depends on several factors e.g. business type, industry etc. It is always advisable to discuss this with us. 

Also, while the bookkeeping for all is relatively the same for a small business,  the accounting for each is a little different. 

Click here to read more about the different ownership structures.

 

GST Registration & GST Returns

Most businesses register for GST.

The tax law in New Zealand states that you do not have to register for GST if your revenue per year is less than $60,000.

While this maybe true for your business - there are other considerations to be taken when deciding whether you want to register or not. Some common questions to ask yourself are:

  • does my business look less professional if it's not registered for GST?
  • do my customers expect a GST invoice?
  • is the increased administrative cost for GST worth being registered?
  • will my revenue during the year go above $60,000?
  • am a I buying a significant asset which might mean I get a GST refund?

Click here to read more about GST Registrations

 

Accounting Basis

If you are registered for Goods and Services Tax (GST) you must account regularly to the Inland Revenue Department (IRD). The "accounting basis" is the method by which you account for GST. There are three options from which to choose:

  • the invoice basis
  • the payments basis
  • the hybrid basis

Click here to read more about Accounting Basis

 

Salaries Versus Drawings

We always get questions about whether the owner should draw the money from the business or whether he/she should become an employee of the business and get regular wages.

There are advantages and disadvantages to each which we have highlighted in the article below.

Click here to read more about Salaries versus Drawings

 

Employees or Contractors

Being an employer has certain obligations to your employees as well as to the IRD.

Along with registering with the IRD as an employer, there is also a matter of offering contracts to staff and filing respective Employee Deduction returns with the IRD monthly including PAYE, Kiwisaver, Child Support, Student Loan etc.

Click here to read more about Employees or Contractors

 

Annual Income Tax Returns

Every business needs to have annual income tax returns prepared and filed on time with the IRD regardless of your ownership structure. If it's a company then a company income tax return as well as personal shareholder returns will need to be filed for a small business.

Along with the requirement to file a return, it's also very important to have a set of Annual Financial Statements for your business prepared by an Accountant.

Your income tax liability for the year is determined by the profit / loss you have filed annually. That is why we use our expert knowledge to make sure that you pay the least tax possible for the year while offering you an affordable service.

Click here to read more on Annual Income Tax Returns

 

Industry Requirements

Certain industries have specific requirements that you need to be aware of.

Quite often these are in the form of Industry Certificates which you might need to obtain before you can begin trading.

Click read for links to specific industry requirement websites