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:
- Has a total tax liability less than $60,000, and;
- Has paid all three instalments on time and has used uplifting method correctly, and;
- 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):
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):
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.