The 2018 Provisional Tax Changes

2018 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.

Practical 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 1^st and 2^nd 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 3^rd 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.