Earlier last year, we previewed the changes to provisional tax proposed by the government to substantially change the rules around provisional tax. You can read our blog here.
Whilst this might all sound a bit dry, it’s a really big deal and you need to familiarise yourself with it.
In short, the Bill will usher in some very welcome changes to the provisional tax regime, including:
- increasing the safe harbour threshold from $50,000 to $60,000. This threshold triggers Use of Money Interest (UOMI) on income tax. The current threshold is limited to individual taxpayers only. The Bill proposes extending the threshold to non-individual taxpayers, including small businesses. This is great news. You can read the IRD’s commentary here.
- introducing the new Accounting Income Method (AIM) for small businesses with turnover less than $5 million per year. The new method will allow businesses to align provisional tax payments with GST. Use of accounting software like Xero is essential. You can read more on the IRD website here.
- eliminating UOMI for the first two provisional tax instalments if you elect to continue using the existing Standard Method.
- removal of incremental late payment penalties for new GST, income tax and Working for Families Tax Credits debts.
The Bill has passed through the committee stage in Parliament and is set for its third reading in the next few weeks.
Once the Bill has passed the third reading, it will go to the Governor General for Royal Assent, in time for the start of the 2018 income year on 1 April, 2017.
We’ll update you on the administrative details of these changes just as soon as we are informed.
You can read more about the bill in details on Parliament’s website here.