UOMI remission guidance: IRD overlooks provisional tax scenario

Image: Question mark.

Question: What is the amount on which IRD will remit interest (UOMI) at the date of the final provisional tax instalment if someone outside of safe harbour is unable to pay on time due to COVID-19?

The answer: We cannot say for certain as this is a scenario IRD has yet to address in its guidance (as of today’s date).

A taxpayer expecting their RIT for the year to be $60,000 or more must pay the remaining balance to settle their liability at the date of their final provisional tax instalment to avoid incurring UOMI.

For those with a 31 March balance date, 7 May 2020 is the final instalment for the 2020 tax year.

A problem that arises is someone might not know the actual RIT for the year by this date. In fact, it might be several months after the year-end before they determine this figure.

As paying the remaining balance on 7 May 2020 will therefore require some guesswork, there is a chance they could miscalculate and end up underpaying.

Example

A taxpayer expects to have RIT of $80,000 in the 2020 tax year and must pay the final balance on 7 May 2020 to avoid UOMI.

They believe the final balance to settle the RIT for the year will be $40,000.

However, because of COVID-19, they are unable to pay on 7 May 2020 and decide to seek assistance from IRD.

The department agrees to grant a remission of UOMI on the $40,000 for eight months under s183ABAB Tax Administration Act 1994.

However, when the taxpayer finalises their return eight months later, it turns out their 2020 RIT is $85,000.

This means they should have paid $45,000 on 7 May 2020 to settle the liability for this year.

All of which begs the question: How will the remission of UOMI work in this instance?

Below we look at three possible approaches IRD may take.

Option one

IRD might only agree to remit UOMI on the $40,000 because:

  • This is what the taxpayer determined what was due and payable on 7 May 2020 under sRC10 (5) and (6) Income Tax Act 2007; and
  • The taxpayer should have had a reasonable expectation of their final liability for the 2020 year given the 7 May 2020 instalment is due after their year-end.

Option two

IRD may take an approach where its UOMI remission at the date of the final instalment applies to the lesser of:

  • The amount calculated by the taxpayer to the settle the liability ($40,000); or
  • The amount that is required to settle the liability ($45,000).

In both options one and two, the taxpayer will liable for UOMI on the $5000 shortfall from 8 May 2020 until this is paid.

Option three

IRD might be generous and agree to remit UOMI on the final balance of $45,000.

If that’s the case, a taxpayer unable to pay on time due COVID-19 receives a major concession for their miscalculation.

Flexitax® is your safeguard

However, this is merely speculation at this stage.

Until IRD clarifies its position, a taxpayer may wish to consider entering a Flexitax® arrangement as a safeguard.

If the department agrees to a full UOMI remission, cool bananas. There’s no requirement to follow through with the arrangement.

If IRD only agrees to waive UOMI on the amount calculated by the taxpayer, then Flexitax® lets them significantly reduce the interest cost they face on any additional tax payable.

As always, we look forward to the department’s clarification.

Over to you, IRD.

 


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COVID-19: How tax pooling can still help taxpayers

IRD may be taking a more flexible approach in terms of its interest (UOMI) remission for taxpayers grappling with the financial impact of COVID-19 – but any request for relief will still be at its discretion and on its terms.

As such, an IRD-approved tax pooling provider such as Tax Management NZ (TMNZ) can assist with provisional tax this month if someone:

  • Misses out on a remission of UOMI.
  • Wants greater payment flexibility to manage cashflow during this difficult time than what they'll receive if entering an IRD arrangement.
  • Prefers not to deal with the taxman.

IRD: ‘If you say you can’t pay, we’ll believe you’

During a Chartered Accountants Australia and New Zealand webcast last month, IRD said they will take a taxpayer at their word if they tell them they cannot pay tax on time due to COVID-19 and accept most applications to waive UOMI if they are for no more than two years from the date the legislation was enacted (this being 25 March 2020).

Taxpayers DO NOT need to have exhausted all financing options before seeking assistance either.

This indicates IRD will be more flexible in its remission of UOMI. It was certainly a different tone to what was found in the general guidance document they issued last month.

And that’s not a bad thing for those reeling from the effects of COVID-19.

Our view

However, we believe the department's approach to the remission of UOMI will fall somewhere in the middle. It won't be as heavy-handed as their general guidance suggest, nor will it be a no-questioned-asked waiver for all.

As such, with provisional tax instalments due on 7 May and 28 May, we explain how tax pooling can be of assistance to taxpayers who are short on cash given the current economic climate.

Below we compare the service to IRD’s remission of UOMI.

Tax pooling offers more flexibility

With Flexitax®, taxpayers have the complete flexibility to pay what they want, when they want for up to 13 months.

While IRD is applying a high-trust approach in terms of applications and offering a remission of UOMI until 25 March 2022, it may still determine the type of payment arrangement it strikes with a taxpayer, the length of that arrangement and the date(s) by which someone must make payment(s) after it reviews someone's request.

There is also an expectation for anyone seeking relief to pay the tax they owe as soon as practicable. Remember, this is not a tax holiday. Only in extreme circumstances will someone be granted 22 months to pay.

If someone cannot honour their arrangement, they will need to contact IRD to renegotiate an extension or request a write-off. They will have to show they've made every possible effort to pay their liability by the agreed date. Whether someone is granted an extension or write-off will come down to IRD’s discretion.

Given that, even though TMNZ interest applies during any Flexitax® arrangement, some may find paying this negligible seeing as it gives them the freedom to manage cashflow by letting them make payments as and when it suits them, rather than having to meet the rigid terms of IRD’s payment arrangement.

A taxpayer has 75 days past their terminal tax to settle any 2020 income tax they owe with TMNZ. They only pay for the tax they require and can easily amend the arrangement to reflect this.

TMNZ’s interest cost can be significantly lower than the 8.35 percent IRD currently charges when someone misses a tax payment. It is very competitive in comparison to most other forms of credit or finance.

And with tax pooling able to eliminate late payment penalties, this makes us the next best option for anyone wanting the flexibility to manage their cashflow.

Tax pooling is easier to arrange

Someone can complete a Flexitax® request in less than five minutes by phoning TMNZ or via their online dashboard. If emailing us, we can have the arrangement ready to go within five hours of receiving someone’s correspondence.

It is also light touch in terms of organising. After all, approval is guaranteed, and no security or financial information is required.

The only thing TMNZ needs is a taxpayer’s IRD number.

Compare that to IRD.

A taxpayer applying for a remission of UOMI will require some financial documentation before they make their submission. While IRD may not ask for this information in all situations – they say it will only be in cases of serious hardship where someone is requesting a write-off of the tax they owe– it’s important to have it ready just in case.

IRD will not finalise and approve anything until it completes a review of the application. That can take three working days or more.

The department is also experiencing unprecedented query volumes right now due to COVID-19, so this may mean getting a response takes longer.

Tax pooling is your safety net

We encourage those seeking IRD relief to enter a Flexitax® request just to be on the safe side.

That’s because there are no guarantees IRD will accept someone’s application for UOMI remission. Again, discretion is key.

If the department accepts the request for relief, then great. There’s no obligation to complete the arrangement.

On the other hand, if IRD declines someone’s request for a remittance of UOMI, a taxpayer can rest safe in the knowledge that they have a way to defer their upcoming 2020 provisional tax payment until June next year, while eliminating late payment penalties and reducing their interest cost.

Please contact TMNZ today if you wish to know more about Flexitax®.


Coffee with Tsarina at Shore Accounting Solutions

Tax pooling is part of the strategy Shore Accounting Solutions employs to assist businesses with managing cashflow and provisional tax payments.

Tsarina Dellow (pictured above) is a chartered accountant at the two-person firm in Amberley, 45 minutes north of Christchurch.

She says paying provisional tax on dates IRD prescribes can be hard on small- and medium-sized businesses’ cashflow. That’s particularly the case during the January to May period, when the department awaits payment of two provisional tax instalments (not to mention GST).

Xero’s Small Business Insights reveal January and May are two of the most difficult months in terms of cashflow. August is another. (See a pattern here?)

Tsarina says business owners can come unstuck in this period – particularly if they’re guilty of not squirreling cash away throughout the year.

“Kiwis are often quite bad at saving. They’re not very good at putting money away in the good times, so when they have a bit of a bump – maybe a customer pays late or a supplier puts their costs up – they don’t often have that buffer there. When you don’t have that buffer, things start to go downhill and it gets really stressful for people really, really fast.”

Enter Tax Management NZ

As an IRD-approved tax pooling provider, Tax Management NZ (TMNZ) allows businesses to make their provisional tax payments when it suits them.

There is no need to worry about late payment penalties. And the interest it charges is fairer than the 8.35 percent IRD slaps someone with when they miss a payment.

Tsarina mentions this service to clients when discussing tax planning and cashflow management if she notices they’re going to encounter any difficulty at certain times of the year.

“If [TMNZ] can help them out with that, we can set a programme in place to even things out during the year,” she says.

“It delivers excellent benefits for people’s cashflow. They’re able to pay their tax as and when it suits them and their business – and they don’t have to worry about the IRD always chasing them up. If they can’t meet a provisional tax payment, they can hand it over to TMNZ and pay it when they can.”

About Shore Accounting Solutions

Tsarina has been working at Shore Accounting Solutions for four years. Her colleague Ben Shore founded the firm in 2012.

The duo is big on providing great, technical tax advice and helping North Canterbury businesses and the community grow.

You can watch our full interview with Tsarina below.


COVID-19: Additional tax relief announced

IRD will have the flexibility to change statutory tax deadlines as part of new measures announced to provide relief for taxpayers during the COVID-19 pandemic.

Plans are also afoot to introduce a temporary tax loss carry-back scheme and relax the tax loss continuity rules.

Today’s announcement by the Government recognises taxpayers require more assistance during what is proving to be a financially trying time.

It follows the tax relief measures they unveiled last month.

The Government plans to introduce legislation containing these changes during the week beginning 27 April.

Detail about the new measures is light at this stage. IRD is not answering specific questions as they’re currently engaging with the wider tax community to determine how things will work.

Nonetheless, below is a summary of what we currently know about these new tax measures.

Giving IRD the power to change deadlines

IRD will have greater flexibility to temporarily change statutory tax dates, timeframes and procedural requirements for businesses and individuals impacted by COVID-19.

This discretionary power will be introduced via an amendment to the Tax Administration Act 1994.

While IRD will publish further guidance in the coming weeks following consultation with tax advisors, this may enable them to extend the deadlines for filing tax returns and paying provisional and terminal tax.

At this stage, the power will apply for a period of 18 months.

Temporary tax loss carry-back scheme

This will allow a taxpayer expecting to make a loss in either the 2020 or 2021 tax year to estimate that loss and use it to offset profit in the previous year.

They will also receive a refund of the tax paid in the previous profitable year.

A taxpayer will be able to cash out all or some of their losses in the 2020 or 2021 tax year. Under current rules, they can only carry them forward to a year when they make a profit.

They will have the option of re-estimating their provisional tax after the date of their final instalment if they require additional time to work out any estimated loss for the 2021 tax year.

IRD will be consulting with tax advisors to ensure the law and administrative guidance are clear.

Please note the Government is also considering a permanent loss carry-back scheme. It would apply from the 2022 tax year onward.

IRD says there will be public consultation about this during the second half of 2020.

Relaxing the tax loss continuity rules

Currently, a company cannot keep its tax losses if it has more than a 51 percent change in ownership.

However, the introduction of a ‘same or similar business’ test will mean they can and help make businesses seeking investment to keep afloat during the COVID-19 pandemic more appealing to investors, thus improving their access to capital.

IRD says the criteria which must be met to satisfy this requirement is modelled on Australia’s rules. This means a company must continue in the same or a similar manner it did before any change in ownership.

Again, IRD is engaging with the tax community to ensure the law is clear.

The Government intends to pass legislation relaxing the tax loss continuity rules before the end of March 2021.

They will apply for the 2021 tax year onward.

More information

You can find out more about today’s announcement by the Government via the links below.

TMNZ will continue to update you with any new tax developments relating to COVID-19.


Image: COVID-19 update

COVID-19 update: Devil in the detail with UOMI remission

Image: COVID-19 update

Update as at 14 April 2020 after IRD clarified its position following the publication of this article

Someone who is struggling to pay tax on time due to COVID-19 will have to engage with IRD and agree to the terms of a payment plan if they want to receive a remission of interest (UOMI).

Given that, they might find setting up a Flexitax® arrangement with TMNZ much easier.

But more on that later.

The criteria for UOMI remission

First, IRD has issued general guidance on the requirements taxpayers must meet in order to be eligible for a remission of UOMI on tax obligations due after 14 February 2020.

To qualify, someone must satisfy the department that they are:

  • Physically unable to make their payment when it’s due because of COVID-19; or
  • Struggling financially to pay on time because of the economic impact caused by the outbreak of the deadly virus.

IRD also requires taxpayers seeking relief to both contact them and pay the tax they owe “as soon as practicable”.

Now on the surface that doesn’t sound too onerous. However, this is the taxman we’re talking about and the devil always lurks in the detail.

And, when you delve a little deeper, it appears that they’re asking a lot from anyone seeking assistance due to COVID-19.

What does ‘struggling financially’ mean?

IRD says there must be a reduction in someone’s income or revenue as a result of COVID-19 which prevents them from paying their tax on time and in full.

The extent to which there needs to be a reduction in income or revenue is not explicitly set out.

IRD will look at GST and other tax return information to help it get a picture of someone’s financial affairs when determining the extent of the relief it will grant them. That’s why it’s important to keep filing these returns.

They may want to know how a taxpayer plans to sustain their business if they own one.

IRD indicates that they may ask a taxpayer to provide the following information when applying for a remission of UOMI:

  • Bank and credit card statements for at least the last three months.
  • Any management accounting information.
  • A list of aged creditors and debtors.

We understand this will be for more serious cases where someone is asking for IRD to write off the tax payable in addition to UOMI.

And, although they do not mention this specifically, their guidance document implies someone will also need to have reviewed other financing options before going cap in hand to IRD. The two examples they give are not helpful as they involve taxpayers who either cannot get an extension of their business overdraft or have maxed out their personal loans or credit cards. 

If the department deems the taxpayer has the means to pay on time following a review of their financial affairs, it will expect that person to do just that –and will take appropriate action if they don’t.

What does ‘as soon as practicable’ mean?

IRD says it will determine this on the facts of each case.

As a general guideline, they say someone will satisfy this requirement if they both apply for relief and agree to pay the tax at the earliest opportunity (or over the most reasonable period given their specific circumstances).

We take this to mean that taxpayers seeking a remission of UOMI must:

  • Be proactive and apply for this relief as soon as possible. If you have missed a payment, you can still contact IRD and ask for remission. 
  • Agree to pay the tax they owe as quickly as possible – most likely at a date or within a timeframe set by IRD based off the financial and tax return information it receives from the applicant. In other words, this WILL NOT be a two-year holiday or deferral from paying tax.
  • Contact IRD as soon as possible if they encounter further difficulty and need to re-negotiate the terms of the agreement.
  • Honour the agreement with IRD by paying the tax they owe.

If someone ticks those boxes, we believe IRD will consider them to have met the ‘as soon as practicable’ requirement.

How will the UOMI remission work?

Taxpayers seeking a remission of UOMI will agree to enter a payment plan with IRD.

This will likely be a regular instalment arrangement, but may also include:

  • An instalment arrangement with a deferred payment start date.
  • A partial write-off due to serious hardship and payment of the remaining tax by instalment or a lump sum.
  • A partial payment and balance write-off under maximising recovery of outstanding tax.

Again, the type of payment plan entered – and any instalment amounts payable – will likely to be determined by IRD based on someone’s financial and tax return information.

In serious cases of hardship, IRD says it may agree to write off the debt.

UOMI and late payment penalties will continue to accrue for those who enter a payment arrangement. 

However, once a taxpayer pays the tax they owe and IRD deems they meet the criteria for remission, it will automatically cancel UOMI.

IRD will also wipe late payment penalties.

Those who do not pay the outstanding tax will face UOMI from the date they stop complying with their arrangement.

IRD’s ability to remit UOMI due to COVID-19 under s183ABAB Tax Administration Act 1994 will apply until 25 March 2022.

Why paying with TMNZ might be easier

The requirements a taxpayer must meet to receive a remission of UOMI from IRD may prove to be one hurdle too many during what is already a difficult time due to the COVID-19.

They may find it easier to set up a Flexitax® payment arrangement with TMNZ if they’re unable to pay their 7 May 2020 provisional tax on time – or missed paying terminal for the 2019 tax year on 7 April 2020.

The reasons why are simple:

  • It’s light touch in terms of organising the arrangement – approval is guaranteed, and no security or financial information is required.
  • Taxpayers have the flexibility to pay as and when it suits their cashflow.
  • No need to worry about late payment penalties.
  • Competitive interest cost in comparison to most other forms of credit or finance. We’re the next best option for those who are ineligible (or don’t want to go through the process of applying to IRD) for a remission of UOMI.
  • The arrangement doesn’t impact other lending arrangements.
  • More time to pay – an extra 75 days to settle the 2019 terminal tax and up to 13 months to pay provisional tax for the 2020 tax year.
  • You only pay for the tax you end up requiring.
  • We’re approved by IRD.

Please get in touch with us today if you wish to know more about Flexitax®.

 


Image: Taxation (Kiwisaver, Student Loans, and Remedial Matters) Bill

Small provisional tax changes have big consequences

Image: Taxation (Kiwisaver, Student Loans, and Remedial Matters) Bill

A standard uplift taxpayer who files an estimate at any time will now be treated as using the estimation method for that entire tax year – meaning IRD interest will accrue from date of their first instalment if the provisional tax they have paid is not enough to satisfy their residual income tax (RIT) liability.

And IRD removing a taxpayer’s ability to choose the
instalment date to which they apply a provisional tax payment will see
taxpayers worse off as they will face compounding interest and late payment
penalties.

Indeed, these are among the changes to provisional tax legislation after the Taxation (Kiwisaver, Student Loans, and Remedial Matters) Bill was enacted on 23 March.

Other key amendments include:


  • Clarifying the ‘lesser of’ calculation of
    interest for standard uplift taxpayers.
  • Clarifying the application of late payment
    penalties applicable from the final provisional tax instalment date.
  • Clarifying the way in which IRD truncates
    provisional tax to whole dollars.
  • Inclusion of a tolerance for provisional tax
    instalments.


General overview

The changes in the Bill simply align the legislation with
what IRD is doing operationally. For the most part, they are taxpayer friendly.

For instance, the tolerance threshold will be welcome after some smaller taxpayers were losing the ability to use the safe harbour interest concession when underpaying an instalment by $1 (or, in some cases, less).

So too will the clarification around IRD applying the lesser of 105 and 110 percent uplift when determining the instalment amount due. Again, we covered this in an earlier blog post.

However, with the situation regarding COVID-19 dominating
the world, there are two seemingly minor changes that were part of the Bill
that may have gone unnoticed.

Although small, these will have big consequences for those who are not aware of them.


1. Eliminating the requirement to estimate provisional tax at the final instalment date

This amendment allows taxpayers to pay an amount lower than
uplift at their final instalment (P3), without having to file an estimate.

It applies in situations where RIT for the year is going to
be less than what was calculated using the standard method.

A new formula in sRC10 Income Tax Act 2007, which deals specifically with P3 for uplift taxpayers, removes the requirement of having to file an estimate.

On the face of it, this is a sensible move.

After all, very few taxpayers are filing estimates in cases where
they are reducing their P3 payment.

Moreover, this requirement was only included after it was pointed
out there was no legal way for anyone to pay less than standard uplift at P3 if
RIT for the year was going to be lower.


The ramifications

However, anyone who was following the letter of the law and
filing an estimate ahead of P3 needs to take notice of the implications of
doing so from now on.

IRD says a taxpayer who switches to this method at any
time
during the year will no longer be able to use the interest
concession rules in s120KBB Tax Administration Act 1994.

As such, they will fall under s120KB of the Act and be subject
to IRD interest from the date of their first instalment if they have not paid
enough provisional tax to satisfy their RIT for the year. 

The reason s120KBB of the Act no longer applies is because the definition of ‘interest concession provisional taxpayer’ found in subsection (4)(a) has been amended. In simplistic terms, an interest concession provisional taxpayer was previously defined as a person who:

(i) Uses the standard uplift method to calculate all their instalments; or

(ii) Uses the standard uplift method to calculate all their instalments except P3, which they estimate.

Subsection (4)(a)(ii) has been repealed as a result of the final instalment formula added to sRC10 Income Tax Act 2007.

This amendment applies from the 2020 tax year onward.


Key takeaway

Don’t switch from standard uplift to estimate. There’s no need to whatsoever.


2. Removing the ability for taxpayers to choose the provisional tax instalment to which they apply a payment

This amends s120L of the Act to prevent a taxpayer from allocating a provisional tax payment to an instalment of their choosing. IRD will now apply their payment(s) to the oldest overdue provisional tax first.

Prior to the interest concession rules for standard uplift taxpayers and the removal of the incremental one percent monthly late payment penalty, it was beneficial for taxpayers to apply payment to the oldest debt first.

However, since introducing these changes, IRD believes a taxpayer
might now inappropriately apply the payment to more recent debt to avoid late
payment penalties. In addition, their system configuration prevents them from
allocating payments to a provisional tax instalment of a taxpayer’s choosing.


The ramifications

As a result, taxpayers who pay late may now be punished multiple times as they will be subject to further interest and late payment penalties at future instalment dates – rather than just facing interest and late payment penalties for the initial instalment they missed.

The example below illustrates this.


Example


A taxpayer forgets to pay their uplift instalment of $54,755 on 28 Aug 2018 (P1). They instead pay $109,510 (this being two-thirds of their uplifted RIT from the previous year) on 15 Jan 2019 (P2).  

On 7 May 2019 (P3), the taxpayer pays the uplift amount of $54,755 because they feel this will be the final balance to settle their liability for the year. They file their return on 31 March 2020, confirming the RIT for the year is $164,265.

Previously, if they asked IRD to apply the entire P2 payment to this date, the taxpayer would only be liable for the LPP for the missed P1 payment, plus 140 days of IRD interest*.

This works out to be:

LPP: $2759.65
Interest*: $1809.26

What happens now
However, with this amendment, IRD would allocate a portion of the $109,510 paid at P2 to the LPP and core tax owing at P1.

This means at P2 the taxpayer will have a shortfall of $2759.65. This equates to further LPP and interest at P2 of:

LPP: $139.08
Interest*: $72.93

As the $54,755 payment made at P3 is required to cover the LPP and core tax owing for P2, they will have a shortfall of $2898.72 at this date. Therefore, they will have further LPP and interest for P3 of:

LPP: $146.08
Interest*: $225.38 (as at 31 March 2020)

So, rather than only having LPP and interest at P1, the taxpayer is also now liable for this at P2 and P3.  

*IRD interest in this example is 8.22 percent for tax underpaid prior to 28 August 2019. The rate which applies from 29 August onward is 8.35 percent.

It’s important to note this amendment will apply retrospectively from the 2019 tax year onward.

However, for taxpayers who previously requested and obtained
a payment direction, IRD says a savings provision will preserve this treatment
so they are not retrospectively penalised.


Key takeaway

For those who miss or forget to pay an instalment, we recommend you use an IRD-approved tax pooling provider such as TMNZ to purchase the backdated tax you require at this date.

As the tax you are purchasing was paid on the date it was originally due, the taxman will treat it as if you paid on time once it processes this transaction, eliminating any interest and late payment penalties you are being charged.

With TMNZ you can make significant savings on Inland Revenue interest.


Further information

We appreciate this was a lengthy read with a lot of information to absorb. Well done if you made it this far. Seriously.

Please don’t hesitate to contact us if you have any
questions about the provisional tax changes in the Taxation (Kiwisaver, Student
Loans, and Remedial Matters) Bill.

 


Image: Taxation (Kiwsaver, Student Loans, and Remedial Matters) Bill

Latest updates + insights on COVID-19 UOMI concession

Image: COVID-19 Response (Taxation and Social Assistance Urgent Measures) Bill

Taxpayers physically unable to pay their tax on time due to COVID-19
can also apply to have IRD interest (UOMI) remitted.

The COVID-19 Response (Taxation and Social Assistance Urgent Measures) Bill – which contains several other tax measures – was passed through all its stages under urgency in Parliament yesterday.

The commentary for the Bill clarifies when IRD can waive UOMI due to the impact of COVID-19 under new section 183ABAB of the Tax Administration Act 1994.

“This section would allow [IRD] to remit [UOMI] if a taxpayer’s ability to make a tax payment on time is significantly adversely affected by an outbreak of COVID-19,” it reads.

“This would include both where a taxpayer has been physically unable to make a payment on time, for example, because they have been quarantined, and where a taxpayer lacks the financial means to make a payment on time because of the economic impacts of COVID-19.”

It's the “physically unable to make payment on time” part in the commentary that piques our interest.

After all, the general assumption was the concession was only available to someone feeling the financial ramifications of COVID-19.

Nonetheless, it's logical to have something that caters to those who physically cannot make a payment due to the current situation.

What ‘physically unable to pay’ means

We are seeking clarification from IRD regarding what constitutes
being physically unable to make a payment on time due to COVID-19.

Our view is this will only apply to a handful of taxpayers.

For instance, take a person with no internet access or reliable phone service who lives in a remote rural area. They mightn't be able to pay at their nearest bank because the branch is closed or operating on reduced hours due to the Level 4 lockdown. In this instance, they may be eligible for remittance of UOMI.

Someone who has caught COVID-19 and is so sick they cannot physically make payment by any means may also qualify.

However, anyone in self-isolation who can pay electronically will probably be out of luck.

Of course, that's provided they don't meet the financial impact criteria (keep reading).

Meanwhile…

The commentary also confirms IRD will only waive UOMI once a taxpayer pays the core tax they owe.

To receive a remittance of UOMI, the taxpayer must make a request to the Commissioner.

They must satisfy the Commissioner that they both sought this relief and made their payment “as soon as practicable” to qualify.

The COVID-19 UOMI waiver explained

IRD may remit UOMI on tax due after 14 February 2020 if someone cannot pay on time due to COVID-19.

It applies to all tax payments such as income tax, PAYE and GST and other payments (e.g. Working for Families) where they charge UOMI.

IRD is developing guidance on when a taxpayer will be eligible for UOMI to be waived.

Initially, they said someone must show at least a 30 percent reduction in revenue for the same period 12 months earlier and have exhausted all options to support themselves financially.

But like everything right now, that may be subject to change.

The UOMI concession will apply for two years after the enactment date of the Bill.

However, there is a provision in the legislation to extend it by an Order in Council.


COVID-19 update: IRD to waive UOMI on late tax

IRD will have the power to wipe interest (UOMI) if those significantly impacted by COVID-19 cannot pay their tax on time.

The provisional tax threshold will also increase from $2500
to $5000.

The changes were announced by Minster of Finance Grant Robertson as part of the Government’s fiscal and economic response package to COVID-19.

A bill legislating the changes will be introduced shortly.

Below is an analysis of what you need to know following the Government’s announcement.

Waiving interest

IRD will have discretion to write off UOMI on payments due after 14 February 2020. That date was chosen because it coincides with when they announced their initial COVID-19 tax assistance options, which included re-estimating provisional tax payments or entering an instalment arrangement.

It will apply to all tax payments such as income tax, PAYE
and GST and other payments where UOMI is charged (e.g. Working for Families).

Anyone whose business is suffering due to the outbreak of COVID-19 is eligible to apply.

IRD is still developing the application process and criteria, but
says that for taxpayers to receive the concession, they will likely need to
prove they have:

  • Seen their revenue drop by at least 30 percent compared to the same time 12 months earlier; and
  • Exhausted all other options to support themselves financially.

It seems they will need to apply for the concession ahead of an upcoming payment.

Under the current proposal, IRD can remit UOMI for a maximum of two years past the enactment date of the bill.

What about late payment penalties?

As this legislation was put together hurriedly, there is
some confusion around whether late payment penalties (LPP) will still apply.

We suspect they been accidentally overlooked and IRD will also exercise its discretion under the Tax Administration Act 1994 to wipe LPP.

The department remits these whenever someone enters an instalment arrangement due to hardship.

Given the severity of the current economic situation, we believe it would be unfair if IRD wipes UOMI but continues to charge LPP.

Increased provisional tax threshold

The increase of the provisional tax threshold from $2500 to
$5000 will apply from the 2021 tax year onward.

It will be a welcome change. After all, it will reduce the
compliance cost for 95,000 taxpayers by removing them from the provisional tax
regime.

For taxpayers who would have otherwise been paying provisional tax in the 2021 tax year, IRD anticipates it will provide estimated cashflow benefits of $350 million.

The Tax Working Group recommended an increase to the provisional tax threshold in its final report last year.

Additional tax measures

The Government also announced several other tax changes as part of its COVID-19 package.

These include:

  • The reintroduction of a two percent diminishing value depreciation deduction for commercial and industrial buildings (including hotels and motels) for the 2021 tax year.
  • A temporary increase in the threshold for expensing low-value assets from $500 to $5000 during the 2021 tax year. The threshold will be $1000 from the 2022 tax year.
  • Changes to the calculation of the in-work tax credit to remove the hours worked test.
  • IRD having greater information sharing powers to facilitate a whole of Government response to COVID-19.

Other major announcements

  • Wage subsidies – $5.8 billion for businesses, up to a maximum cash payment of $150,000 over the next 12 weeks and capped at $585 per week per fulltime employee (and $350 for part-time employees). Businesses will need to demonstrate a decline of at least 30 percent in revenue due to COVID-19 for any month between January 2020 and June 2020.
  • Paid leave support – $126 million to support workers impacted by COVID-19 or self-isolation and a $100 million work redeployment package.
  • Assistance to those receiving benefits – $2.8 billion via a $25 per week increase in core benefits from 1 April 2020 and a doubling of the winter energy payment.
  • Additional health funding – $500 million to improve the COVID-19 response.
  • Aviation sector support – $600 million.

UOMI rates likely to drop

The recent official cash rate cut by the Reserve Bank of New Zealand means IRD is likely to drop its UOMI rates.

The overpayment rate will go from 0.81 percent to 0 percent.

That’s because due to a legislative amendment that is in the process of being made, it will be now based on the higher of:

  • The 90-day bank bill, minus 100 basis points; or
  • 0 percent.

Previously, IRD set this rate using only the 90-day bank bill, minus 100 basis points.

The 90-day bank bill as at 17 March 2020 was 0.66 percent.

Given that, without the legislative amendment, taxpayers will have faced the situation of IRD charging interest on their overpaid tax.

The rate of underpayment (currently 8.35 percent) is determined by taking the floating first mortgage new customer rate and adding 250 basis points. As such, we feel it may drop to around seven percent.

Any change in UOMI rates will likely happen after 7 May 2020. TMNZ will keep you updated.


Image: Laptop screen

New permission levels for dashboard users

TMNZ now offers a read-only view of our dashboard that allows users to look at arrangements and tax balances without fear of mistakenly changing anything important.

A member of a tax firm or a taxpayer can view quotes, transactions and balances as part of this new permission functionality. But more importantly, users with this type of access are prevented from creating or editing anything inside the dashboard.

Here’s what has changed and how you can set this permission status.

A new status when viewing users

Current dashboard users will notice when viewing contacts that the dashboard view – and hence their permission status – can now been seen and edited.

Changing existing contacts

Dashboard users can update a user to read-only by selecting the drop-down from the dashboard view column and selecting the new permission.

Adding new contacts

When adding a new user, you now have the option to select and set the dashboard view status if an invitation email is sent to the new user.

Logging in as a read-only user

The activity centre is still the default starting place for read-only users.
Read-only users can see quotes, confirmed arrangements, completed transactions and balances.

When a read-only user logs in to the dashboard, they have a modified view. To easily see transactions, the activity centre shows the status of quotes, confirmed arrangements, completed transactions and balances.

This is the core component of the functionality we wanted to deliver, allowing access to information efficiently and effectively.


Coffee with Bernice at BLO Consulting

Tax is not the only thing business owners focus on, says Bernice Lo from BLO Consulting.

She knows how they think. After all, she started her accountancy practice in 2007. Today, it is a thriving team of seven with another team overseas, making them available 24 hours a day during the work week.

Their clientele are varied. A large portion do real estate transactions, another group are subsidiaries of overseas companies and another group are New Zealand based.

Regardless of their unique situation, they all have one thing in common: Provisional tax.

We had the opportunity to ask Bernice questions such as the below:

  • Besides cashflow, what are other obstacles for businesses?
  • Would you recommend TMNZ to other businesses?
  • Why did you choose to become a premium partner with TMNZ?

"[Tax pooling] is cheaper and has very competitive rates. Dealing with the TMNZ team has always been great, so I like it [all]." , she says.

Watch her video below to hear more.