Interest on short-paid provisional tax

Are you likely to pay more than $60,000 provisional tax per year? If yes, read on:

 

Some clients will have a good idea of their income for the year shortly after it has ended. Why wait until we have prepared your tax return to discover how much tax you have to pay?

IT people are often a good example. They know the fees they have generated for the 12 months. It is the amount they have invoiced. When they look at their accounts each year, they will probably notice their overheads tend to be reasonably constant. All they have to do is to take their earnings, deduct their expected expenditure and they have a fairly accurate idea of their taxable income.

 

Provided you pay your provisional tax using the standard method, which is automatically generated when your tax return is prepared, there will be no use of money interest charge on the first and second instalments of provisional tax. However, you are expected to be able to work out your income for the year in time for the third provisional tax instalment.

If you have an income which attracts more than $60,000 tax per year, compare your income this year (after deducting GST and expenses, of course) with last year.

The standard calculation for provisional tax automatically allows for an increase in your income of 5%. If you think your income for the year ended 31 March 2018 is going to be more than this (we assume you have a 31 March balance date) make another tax payment now over and above the amount we asked you to pay on 7 May.

How do you calculate the amount? It is 33% of the difference between the income you expect and the income on which you have paid tax.

Add new comment