On 13 April 2016, the Government announced a number of tax changes.  The changes are a continuation of IRD's plan of tax simplification and are likely to have a positive impact on many taxpayers.  The biggest changes are as follows:

  • Removing the on-going monthly 1% late payment penalty from unpaid income tax, provisional tax, GST and Working for Families Tax Credits,  as this was seen as a barrier to compliance.  The initial 1% immediate penalty and month late 4% penalty will however remain.
  • The safe harbour method of calculating provisional tax will be extended to non-individual taxpayers so that those paying the prior years tax plus 5% will not incur use of money interest.  The threshold for using the safe harbour method will also increase from $50,000 to $60,000 residual income tax.    
  • Use of money interest will be removed from the first and second provisional tax payments for all tax payers who fall outside the safe harbour threshold and who use the standard uplift method to calculate their provisional tax.  Use of money interest will apply from the third instalment date if there is a shortfall at that point. 
  • Small and medium sized businesses will be able to calculate their provisional tax payable based on their accounting profit from their accounting software meaning that tax payers will be able to match tax payments to when income is earned rather than on an estimate of the profit for the whole year ahead.  This method will be called "AIM" (Accounting Income Method) and is being likened to the current PAYE system for individual wage and salary earners.  It is expected that this method will be available from the 2019 income year. 
  • Contractors will have more flexibility in the withholding tax rate that is applied against their income.
  • RWT Certificates of Exemption will no longer need to be renewed annually. 
  • Simplification of FBT around close companies providing motor vehicles to shareholders and increasing the threshold for FBT to allow more taxpayers to pay FBT annually rather than quarterly.
  • Increased sharing of information on significant tax debts with credit reporting agencies and sharing information with the Companies Office. 

There is a raft of other changes included in the proposal which is expected to become legislation by August 2016 and will take effect from 1 April 2017 for the 2018 income tax year. 

Overall, we see these changes as a definite step in the right direction to assist taxpayers with meeting their obligations.  Watch this space for further updates as to when these changes will apply.