Provisional Tax And Use Of Money Interest (UOMI) Changes

From the 2018 financial year, legislative changes have been made to how use of money interest (UOMI) applies to provisional taxpayers. These changes are taxpayer friendly as it will mean fewer taxpayers are subject to UOMI and, for those who are still subject to UOMI, the date at which UOMI starts accruing may be later.

The changes can be summarised as follows:

  • the residual income tax (RIT) threshold at which UOMI applies for individuals has increased from $50,000 to $60,000
  • the RIT threshold at which UOMI applies for non-individuals (companies and trusts) has increased from $2,500 to $60,000
  • the date from which UOMI starts accruing has been moved from the first provisional tax instalment date to the final provisional tax instalment date for all taxpayers who use the standard uplift method (i.e. provisional tax is paid based on the previous years’ tax payable) for all but the final instalment of provisional tax and whose ‘provisional tax associates’ also use the standard uplift method.

It should be noted that if a taxpayer (or a provisional tax associate) estimates their provisional tax at any time before the final provisional tax instalment date, UOMI will be charged from the first provisional tax instalment date. This is irrespective of the taxpayer’s level of RIT.

So who is a provisional tax associate?

  • A company is only a provisional tax associate of another company if the companies are 100% commonly owned.
  • A company is only a provisional tax associate of a person other than a company if the other person has a voting interest in the company of 50% or more.


What does this mean for you?

If your taxable income does not vary significantly from year to year – you should pay provisional tax based on the uplift method to avoid accruing interest until from the final instalment date, if at all. This is a much later date than under the previous rules and will likely result in less UOMI interest being payable.

If your taxable income increases significantly from the previous year – you should pay provisional tax based on the uplift method for your first two instalments. UOMI will only be charged, if at all, from the final instalment date. This is a much later date than under the previous rules and will likely result in less UOMI interest being payable. There is usually no benefit under the new rules in paying more provisional tax to Inland Revenue than Inland Revenue is expecting. However, taxpayers in this situation need to ensure that they have kept aside enough funds to cover the additional tax that will be payable on the final instalment.

If your taxable income decreases significantly from the previous year – if you know that your income will be significantly lower than the previous year, you can file an estimate with Inland Revenue in order to pay the lower amount. However, this will result in UOMI accruing from the first provisional tax instalment date. As long as the estimate is reasonably accurate, the additional UOMI payable is likely to be insignificant.

If you have any questions or wish to discuss this further please contact us.

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