Goodbye to Provisional Tax (Kinda…)

So the Government has announced* they’ll be reforming the provisional tax regime (among other things, such as changes to the penalty interest regime). There is no explicit removal of provisional tax, which remains, but you do get a new accounting option, which has a different payment option. This will be good news for a lot of people and should simplify a lot of tax compliance. It isn’t a ‘game changer’ or a ‘strategic vision’, but it will actually improve an area which causes a lot of headaches for a lot of people.

To be clear, as there has been some confusion expressed in this area, the change introduces a new accounting option (for calculating provisional tax)¬† called the Accounting Income Method (AIM). This will allow, in effect, you to calculate and pay your tax liability on a regular basis (bi-monthly), using your online accounts (so you’ll need cloud accounting of some sort), rather than the current 3-instalments per annum. The AIM will be available to anyone (not just companies, as some have claimed) with a turnover below $5m p.a. The proposal also makes it possible for companies to pay provisional tax, as agents, for shareholder-employees.

So it should make it easier for smaller businesses to comply with tax and make cash-flow management easier. There are other changes which look promising too (changing the Withholding Tax rules, and making them flexible, will be great for anyone who’s ever administered PAYE – well, at least, some of us). Again, it won’t hit everyone, and a lot of people will probably misunderstand the changes (‘why am I not getting a tax cut?’ and ‘this is just for rich pricks’), but the changes proposed will actually improve the tax system (even if only at an administrative level).

This doesn’t change my overall opinion, that National remains very limited in its scope to actually improve the tax system (we retain far too many, often complex, regimes – including things like FIF, which I find absolutely daft) and remains prone to political game-playing (hence the GST on internet goods and services, which so far hasn’t produced a workable model, as I see it). But I’ll take any improvement that does come along and the current political alternatives aren’t going to do any better of a job (they’ll just increase complexity and, probably, rates).

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2 thoughts on “Goodbye to Provisional Tax (Kinda…)

  1. Yes, good comment about the continuance of the unwieldy tax system in general RQ . Also always good to see your contributions on Kiwiblog. Just an atert RQ / I think some people may comment here, but have it lost by not entering details first

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