Image: IRD interest

The cost of getting provisional tax payments wrong is about to increase – but not with TMNZ.

IRD interest rates are going to change and the news is not good for taxpayers.

IRD is increasing the interest it charges taxpayers if they underpay or fail to pay their provisional tax on time from 8.22 percent to 8.35 percent per annum.

They are decreasing the amount of interest they pay a taxpayer if they overpay their tax from 1.02 percent to 0.81 percent per annum.

This change takes effect from 29 August 2019.

Despite this adjustment, TMNZ is keeping its costs of purchasing tax at its current low rates.

With an increase in the cost of underpaying tax and taxpayers receiving lower interest when overpaying, there has never been a better time to use tax pooling.

IRD interest: How rate are sets

IRD uses the Reserve Bank of New Zealand’s rates to set the interest it charges and pays taxpayers.

They basis for interest on underpayments is the floating first mortgage new customer rate, plus 2.5 percent.

For interest on overpayments, they take the Reserve Bank’s 90-day bank bill rate and minus one percent.

IRD reviews interest rates regularly to ensure they are in line with market interest rates.

The last IRD rate change was in March 2017.