If you’ve got a really good memory (I haven’t!), you may recall a 2019 Questions We’ve Been Asked titled ‘Provisional tax – impact on employees who receive one-off amounts of income without tax deducted’. The QWBA provided commentary on the titled issue.
Since that QWBA was released, however, there have been a number of legislative changes including:
- the increase in the residual income tax (RIT) threshold from $2,500 to $5,000
- the concession giving provisional taxpayers with RIT of less than $60,000 relief from debit interest for missed or short paid installments provided RIT is paid by the terminal tax date
- the concession giving provisional taxpayers with RIT of more than $60,000 the ability to pay their expected amount of RIT by the third instalment date without exposure to debit interest.
- including the claim is incorporated to better integrate it with IR filing systems and provide some debit interest relief, as well as to accommodate the change to automatic assessments and to capture bright-line income which can result in provisional tax obligations.
Consequently, Inland Revenue (IR) have now issued PUB00418, ‘Provisional tax – impact on employees who receive one-off amounts of income without tax deducted’, as an updated version of QB 19/03.
The draft QWBA is a 15-page document that essentially confirms:
- If the lump sum amount results in RIT of more than $60k for the year of receipt, then provided you pay the RIT in full by your third instalment provisional tax date (usually 7th May), there will be no exposure to UOMI;
- If the lump sum results in RIT of more than $5k but less than $60k for the year of receipt, then provided you pay the RIT in full by your terminal tax date (usually 7th February unless you have a tax agents extension to 7th April), there will be no exposure to UOMI;
- For the following income year, provided you’re comfortable your RIT for that year will not exceed $5k, you can either remain on the standard payment option for provisional tax and just ignore the constant badgering from IR that you have overdue payments (which will disappear once the RIT position is finalised), or you can file an estimate to reduce your provisional tax liability to nil.
It had to happen!
Hard on the heels of last week’s increase to the prescribed interest rate for FBT loans effective from January, it’s of no surprise to now see an increase in the use of money interest rates.
So, effective from 17th January 2023, you’ll see an increase in the taxpayer’s paying rate of interest on unpaid tax from 7.96% to 9.21% per annum, and an increase in the Commissioner’s paying rate of interest on overpaid tax, from 1.22% to 2.31% per annum.
