Filing a 2017 income tax return? Remember this

Filing a returnPlease note the timing of when you file an income tax return can affect the standard uplift calculation – and what needs to be paid at the first two instalments – under the new provisional tax rules.

As such, some will benefit if they defer filing their 2017 income tax return while others will want to file it quickly.

Why is that? Because the liability at the first two provisional tax instalments is now capped at the uplift amount if a taxpayer chooses to use the standard method.

Basing your uplift calculation on last year (2017) or two years’ prior (2016) could, therefore, result in a lower liability for your first two dates of the 2018 tax year.

A recap to calculating provisional tax

Remember, the standard uplift calculation for provisional tax during the 2018 tax year is based on either:

If you pay your provisional tax in three instalments:

How this affects 2018 provisional tax

Below is how the timing of when you file a 2017 income tax return can affect provisional tax payments if using the standard uplift calculation. Assume you have a 31 March balance date and provisional tax for the 2018 tax year is due on 28 August 2017, 15 January 2018 and 7 May 2018.

1) Growth situation

2016 tax year: $300,000 RIT.

2017 tax year: $400,000 RIT.

2018 provisional tax: It depends on when the 2017 income tax return is filed.

What if the 2017 return is filed before P1?

Provisional tax based on a 105 percent uplift of the 2017 RIT would be due at P1 and P2.

In this case, $140,000 would be due at each date. Any remaining balance for the 2018 tax year will be due at P3.

What if the 2017 return is filed between P1 and P2?

Provisional tax based on a 110 percent uplift of 2016 RIT would be due at P1. Provisional tax due at P2 is two-thirds of the uplifted 2017 RIT (less any amount paid at P1).

In this case, $110,000 would be due at P1 and $170,000 at P2*. Any remaining balance for the 2018 tax year will be due at P3.

*P2 calculation explained: Two-thirds of the uplifted 2017 RIT ($280,000), less tax paid based on a third of the uplifted 2016 RIT at P1 ($110,000).

But what if the 2017 return is filed after P2?

Provisional tax based on a 110 percent uplift of 2016 RIT would be due at P1 and P2. In this case, $110,000 is due at each date. Any remaining balance for the 2018 tax year will be due at P3.

2) Reverse situation

2016 tax year: $600,000 RIT

2017 tax year: $500,000 RIT

2018 provisional tax: Again, it depends on when the 2017 income tax return is filed.

What if the 2017 return is filed before P1?

Provisional tax based on a 105 percent uplift of the 2017 RIT would be due at P1 and P2.

In this case, $175,000 would be due at each date. Any remaining balance for the 2018 tax year will be due at P3.

What if the 2017 return is filed between P1 and P2?

Provisional tax based on a 110 percent uplift of the 2016 RIT would be due at P1. Provisional tax due at P2 is two-thirds of the uplifted 2017 RIT (less the amount paid at P1).

In this case, $220,000 would be due at P1 and $130,000 at P2*. Any remaining balance for the 2018 tax year will be due at P3.

*P2 calculation explained: Two-thirds of the uplifted 2017 RIT ($350,000), less tax paid based on a third of the uplifted 2016 RIT at P1 ($220,000).

But what if the 2017 return is filed after P2?

Provisional tax based on a 110 percent uplift of the 2016 RIT would be due at P1 and P2.

In this case, $220,000 would be due at each date. Any remaining balance for the 2018 tax year will be due at P3.

Further information

Please consider the above if you are about to file a 2017 income tax return.

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