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General update by IBBZ Accounting on latest tax news, business growth and technology tips.

Use-of-money Interest (UOMI) Rules for Provisional Tax Payments

Use-of-money Interest (UOMI) Rules for Provisional Tax Payments

Summary: If the Residual income tax (RIT) is higher than the provisions, UOMI not charged to taxpayers who had used standard uplift method (105% or 110% uplift rule) and paid their three instalments on time and total tax liability is under $60,000.

Effective date: From 2018 Financial Year onwards

UOMI will not apply to taxpayers who:

  1. Has a total tax liability less than $60,000, and;
  2. Has paid all three instalments on time and has used uplifting method correctly, and;
  3. Has not been benefited from any instalment arrangement which removes interest and penalties from late payments of Provisionals.

Example 1 (Taxpayers who paid three instalments on time):

Instalment due 28/8/2020 15/1/2021 7/5/2021 Total
Instalment amount $5,000 $5,000 $5,000 $15,000
RIT $6,667 $6,667 $6,667 $20,000
Payment date 28/8/2020 15/1/2021 7/5/2021 1/8/2021
Paid amount $5,000 $5,000 $5,000 5,000 $20,000
Shortfall $1,667 $1,667 $1,667

The total provisional tax was $15,000, which is revised later with a higher RIT of $20,000. Reflecting a $1,667 increase in each instalment. The total difference of $5000 is paid after the final instalment. However, if the balance $5000 is paid on or before 07-05-2021 then there will NOT be UOMI.

As the taxpayer has been using the standard uplifting method, the total tax liability is under $60,000, and the three instalments were made on time: UOMI will only apply to the total difference between RIT & total instalments ($20,000 - $15,000 = $5,000) from 7/5/2021.

However, if the taxpayer could correctly file his/her tax return and could pay $10,000 (3rd instalment plus Shortall) by 7/5/2021 to meet his/her actual tax obligation, there will not be UOMI charged.

Example 2 (Taxpayers who did not pay instalments on time):

Instalment due 28/8/2020 15/1/2021 7/5/2021 Total
Instalment amount $5,000 $5,000 $5,000 $15,000
RIT $6,667 $6,667 $6,667 $20,000
Payment date 28/8/2020 15/1/2021 7/5/2021
Paid amount $0 $0 $20,000 $20,000
Shortfall $6,667 $6,667 0

In this case, the total provisional tax wax $15,000, which is revised later with a higher RIT of $20,000. Reflecting a $1,667 increase in each instalment.

As the taxpayer did not meet the payment obligation of first two instalment ($5000 each), there are shortfalls of $6,667 for the first two instalments.

Effectively, the taxpayer did NOT make the three instalments on time: the taxpayer will be subject to UOMI on the first and second shortfall at $$6,667 each from 28/8/2020 and 15/1/2021 respectively.

IBBZ Accounting Business and Tax Updates July 2022
Importance of Tax planning