Provisional Tax sanity on the way

MP Judith Collins

 

A Bill that tightens the foreign trust disclosure rules, simplifies tax processes and reduces or eliminates use-of-money interest for most business taxpayers passed its final stage in Parliament…

“The new legislation tightens the disclosure rules for foreign trusts as recommended by the Shewan Inquiry,” says Revenue Minister Judith Collins.

“It also includes measures to implement the G20/OECD standard for the Automatic Exchange of Information, to help detect and prevent tax evasion globally” she says.

The new legislation also contains a number of measures to simplify tax processes. Many businesses report that the most difficult aspect of their tax affairs is calculating and paying provisional tax. The introduction of the accounting income method, the key measure introduced by the new legislation, will give smaller businesses a new pay-as-you go option for provisional tax from 1 April 2018.

The accounting income method, will allow small taxpayers to use their accounting software to calculate and pay their provisional tax taking the guess work out of calculating provisional tax.

Other business-friendly measures, commencing 1 April 2017, include reducing or removing use-of-money interest for the vast majority of business taxpayers and removing the one per cent incremental late payment penalty for new GST, income tax, and overpaid Working for Families tax credits, Ms Collins says.

“Use-of-money interest is often seen by businesses as unfair. Currently, even if a business pays the correct amount of provisional tax during the year they can still incur the interest. The combination of the accounting income method and the other provisional tax changes will reduce the impact of interest.

Unfortunately, we’ll have to wait for it a little longer.  From the IRD

….a new way of calculating and paying provisional tax, called the Accounting Income Method (AIM).

Under AIM, businesses with gross income less than $5m can use their accounting software to calculate their tax payments throughout the year. Tax payments will be based on accounting income instead of being a separate calculation. Businesses which choose to use AIM will make payments more regularly throughout the year. If they make the payments calculated by their software, they will not be liable for use of money interest.

AIM is a significant step forward in making tax part of running a business, rather than a separate process, and is a big change to the way the provisional tax system works now. This website provides information about how AIM could work, and asks questions about key issues. Please take a look at the proposals and give us your feedback – officials are keen to hear your views about how AIM should work. The AIM method will be implemented from 1 April 2018 and we will be updating this website with further questions for your feedback as the policy develops.

Another reason for small and medium enterprises to throw out their steam driven accounting systems.  As a user of Xero, I know they will be all over this and make it a no-brainer.   A bit like PAYE for business really.

 

 

 


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