2018 income tax payment strategy
Here’s a strategy that lets you have the best of both worlds if you are due to pay your first instalment of provisional tax under the new rules on 28 August.
TMNZ allows you to cap your liability at the amounts due as per the standard method while offering you the flexibility to pay tax based on how your year is unfolding or when your actual liability is known.
Those with highly volatile or seasonal income will find this useful.
After all, it’s like using the estimation method, but with considerably less downside. Remember, the old rules apply for those who estimate their provisional tax payments.
Paying via TMNZ lets you have the best of both worlds while reducing your IRD interest costs by up to 30 percent.
Tax payments – what you need to do
- Tell IRD you are using the standard method
This means you do not have to pay more than the uplift amount at your first (P1) and second (P2) provisional tax dates, even if your actual liability is higher.
Assuming you do not fall under the safe harbour*, the remaining balance is due at your final instalment (P3).
- Put in place Flexitax® arrangements with TMNZ for the coming year
Enter these for the dates on which you are due to pay provisional tax for the coming year based on the lower amount due.
Manage cashflow by paying what you want, when you want based on how your year is playing out – but safe in the knowledge that you do not need to pay more than the uplift amount at P1 and P2 if things are going better than forecast.
- When the actual liability is known, settle any remaining Flexitax® balances
IRD charges interest on the lower of the uplift amount due or a third of the actual liability if provisional tax is underpaid.
Once you’ve worked out exactly what you owe, pay your Flexitax® arrangement to the required level at P1 and P2. Top up the final balance at P3.
Please log in to your dashboard to set up your Flexitax® arrangements for the 2018 tax year.
*The safe harbour now extends to any taxpayer whose actual income tax liability is less than $60,000. For those who fall under the safe harbour, provisional tax due is the uplift amount at P1, P2 and P3 with the reminder due at terminal tax.