Tax tip: Coming up to your third provisional tax date and had a better financial year than expected?

Tax tip: Coming up to your third provisional tax date and had a better financial year than expected?

Tax tip: Coming up to your third provisional tax date and had a better financial year than expected? Lee Stace

http://www.dreamstime.com/-image28845038If you have had a better-than-expected year and are considering paying extra income tax at your final provisional tax date (P3) to compensate for earlier underpayments, Tax Management NZ (TMNZ) has an alternative method that will further reduce your exposure to IRD interest.

We recommend you pay your estimated liability at P3 and purchase the additional amount of income tax you require at your earlier provisional tax dates (P1 and P2).

As illustrated in the diagram below, paying an extra amount at P3 stops IRD interest accruing from that date. It does not reduce the interest you are subjected to because of underpayments at P1 and P2.

Normal provisional tax payments

However, purchasing the additional amount of income tax required at P1 and P2 will reduce your exposure to IRD interest by up to 30 percent (see below).

Tax PURCHASE top-up at P3

Log in to get a Tax PURCHASE quote or use the online calculator here.