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

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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.

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Saurav Wadhwa

Saurav Wadhwa is the Managing Director of IBBZ Accounting. IBBZ Accounting is one of the finest tax consulting firm based in Auckland, New Zealand. IBBZ Accounting has multiple business awards. 
Saurav Wadhwa is Masters in Taxation and Post Graduate in Law. Has dual membership with New Zealand Institute of Chartered Accountants and CPA Australia. He has a passion for Helping New Zealand Businesses. 


 


Awards and Recognition


 


As of Aug 2020 total number of 115 businesses saved from tax debt associated problems. Their written testimonials and Google Reviews provides authenticity of these numbers.


2019 IBBZ Accounting was Finalist in two categories: Excellence in Customer Service and Excellence in Business Planning. Westpac Auckland Business Awards


2018 IBBZ Accounting was Finalist in Westpac Auckland Business Awards: Strategy and Business Planning 2018.


2017 Saurav was appointed as a committee member to New Zealand Public Practice Board of CPA Australia. 


2015 Saurav won the award of Best Accountant of the Year.


2014 IBBZ Accounting won the award of Best Small Business 2014. 



 


News Paper Articles.


Sunday Star Times -Fairfax Media -12-08-2018


InTheBlack Aug 2018 issue - CPA Australia In Practice Publication 


 


Contact us on info@ibbz.co.nz  or 09 272 8050

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