Provisional tax

Sections MB 4, MB 7, MB 9, MB 10, MZ 10 to MZ 12 and OB 1

Transitional uplift factors relating to the calculation of provisional tax instalments have been introduced.  Specifically, where the base year is 2007-08 or earlier and provisional tax is being calculated for the 2008-09 or later income years then:

• when a 105% uplift is generally required, the transitional factor is 95%;
• when a 110% factor is generally required, the transitional factor is 100%; and
• when the GST ratio method is used that is based on residual income tax (RIT), the transitional factor is 90%.

The transitional uplift factors have been introduced so that provisional tax liabilities are not overstated as a result of basing provisional tax instalments on a previous year's RIT.

Background

A number of options for calculating provisional tax instalments rely on the taxpayer's RIT for a previous year.  Basing provisional tax instalments on a previous year's RIT will have the effect of overstating provisional tax instalments if the taxpayer is a company or a savings vehicle. 

Key features

The calculation factors are detailed in Table 1.

Table 1

Sections MB 4 (methods for calculating provisional tax liability), MB 7 (GST ratio method), MB 9 (calculating amount of instalment under standard and estimation methods) and MB 10 (calculating amount of instalment using GST ratio) have been amended by providing sign posts to new sections MZ 10, MZ 11 and MZ 12.  Each of these new sections applies when a person or a portfolio tax rate entity is a new tax rate person, and uses the 30% tax rate for the 2008-09 and later income years.

Section MZ 10 signals the transitional uplift factors for the standard method of calculating provisional tax instalments for the purposes of section MB 4. 

Section MZ 11 reduces the uplift factor for the GST ratio for one and two-month filers to 90%.

Section MZ 12 reduces the uplift factors for the standard method of calculating provisional tax instalments (including 6-monthly GST filers) from 105% to 95%, and from 110% to 100%, respectively.

Application date

The new transitional rules apply from the start of the 2008-09 income year.