Image: Smartphone calculator

IRD has extended the timeframe for taxpayers to elect to use the GST ratio method in the wake of COVID-19.

They now have until 19 August 2020 or the day before the start of their 2020-21 income year, depending on which is later, to opt in.

Normally someone who is eligible to calculate their provisional tax on this basis must choose to do so before the start of their new tax year.

For example, a taxpayer with a 31 March balance date would have to inform IRD they wish to use the GST ratio method for their 2020-21 income year on or before 31 March 2020.

However, IRD recognises that COVID-19 may have made it difficult for someone to make this election within that required timeframe and has decided to grant more time.

They are also giving someone 10 working days to make their provisional tax payment(s) once they are notified of their GST ratio percentage.

If a taxpayer completes payment within that timeframe, IRD will waive any penalties and interest.

What is the GST ratio method?

The GST ratio method lets someone pay provisional tax based on a percentage of their taxable supplies.

A taxpayer can choose to use this calculation if:

  • Their income tax liability for the previous year wasn’t more than $150,000.
  • They file their GST returns monthly or every two months.
  • They aren’t operating as a partnership or a look-through company.

IRD calculates the GST ratio percentage figure by dividing the previous year’s income tax liability by the total taxable supplies for the corresponding income year.

Someone using this method pays provisional tax six times a year.