Aligning GST and Provisional tax payments

2007 amendments align the payments of provisional tax with GST payments and provide a new method of calculating provisional tax - the GST ratio method.

Changes to the Income Tax Act

Section RC 7(6) of the Income Tax Act 2007 and section MB 6(5) of the Income Tax Act 2004; section RC 8 of the Income Tax Act 2007 and section MB 7 of the Income Tax Act 2004; section RC 9(7) of the Income Tax Act 2007 and section MB 8(6) of the Income Tax Act 2004; section RC 9 of the Income Tax Act 2007 and section MB 8 of the Income Tax Act 2004; section RC 10(1)(b) of the Income Tax Act 2007 and section MB 9(1)(b) of the Income Tax Act 2004; sections RC 16(2) and RC 16(5) of the Income Tax Act 2007 and sections MB 15(2) and MB 15(11) of the Income Tax Act 2004; section RC 17(4)(a) of the Income Tax Act 2007 and section MB 15(8)(a) of the Income Tax Act 2004; sections RC 18(2) and RC 18(4) of the Income Tax Act 2007 and sections MB 17(2) and MB 17(4) of the Income Tax Act 2004; section RC 19(2) of the Income Tax Act 2007 and section MB 18(2) of the Income Tax Act 2004; sections RC 21(2) and (3), of the Income Tax Act 2007 and sections MB 20(2) and (3) of the Income Tax Act 2004; section RC 25(6) of the Income Tax Act 2007 and section MB 24(5) of the Income Tax Act 2004; section RC 26(5) of the Income Tax Act 2007 and section MB 25(5) of the Income Tax Act 2004; Schedule 13 part B of the Income Tax Act 2007 and of the Income Tax Act 2004

A number of remedial amendments have been made to the provisions which align the payments of provisional tax with GST payments and provide a new method of calculating provisional tax based on a percentage of GST taxable supplies - the GST ratio method. These amendments give effect to the original intent of the scheme.

Key features

  • Section RC 7(6) of the Income Tax Act 2007 and section MB 6(5) of the Income Tax Act 2004 have been amended to provide that taxpayers who, after the first instalment, cease using the GST ratio method to calculate their provisional tax liability can elect to pay GST six-monthly. This amendment corrects a legislative oversight whereby the incorrect payment due dates were specified in section RC 7(6) of the Income Tax Act 2007 and section MB 6(5) of the Income Tax Act 2004. The amendment correctly specifies that taxpayers who change from paying GST every two months to paying GST six-monthly will pay their provisional tax in two instalment on the dates specified in columns C and F of Schedule 13, part A.
  • Sections RC 8(3) and RC 8(7) of the Income Tax Act 2007 and sections MB 7(3) and MB 7(7) of the Income Tax Act 2004 have been amended. The legislation previously required taxpayers who used the GST ratio calculation method to base their GST ratio on information from two years ago, being the latest available information. However, there will be instances when taxpayers will have to calculate the GST ratio based on information from three years ago if they have an extension of time to file their later year's tax returns. Two new subsections have been inserted, sections RC 8(3B) and RC 8(7B), to enable information from three years ago to be used to base the ratio calculation on, provided that the information is available for that year and the year is not a transitional year, or the assessment for that year is not subject to a dispute or challenge.
  • An amendment has been made to section RC 9(7) of the Income Tax Act 2007 and section MB 8(6) of the Income Tax Act 2004 to correct a cross-referencing error. The reference to section RC 7 of the Income Tax Act 2007 and section MB 6 of the Income Tax Act 2004 has been removed.
  • Section RC 9(9) of the Income Tax Act 2007 and section MB 8(8) of the Income Tax Act 2004 have been amended to clarify that new provisional taxpayers are liable to pay use-of-money interest as if they were liable to pay provisional tax in either: three, two or one instalment depending on when they start their taxable activity.
  • Section RC 9(9)(b)(ii) of the Income Tax Act 2007 and section MB 8(8)(b)(ii) of the Income Tax Act 2004 have been amended to clarify that the subparagraph only applies to six-monthly GST payers who start business part-way through a year, and not in any other circumstance.
  • Two cross-referencing changes have been made to section RC 10(1)(b) of the Income Tax Act 2007 and section MB 9(1)(b) of the Income Tax Act 2004. The section now also refers to sections RC 9(7) and (8) of the Income Tax Act 2007 and sections MB 8(6) and (8) of the Income Tax Act2004.
  • To ensure consistency of terminology between the provisional tax legislation and that used in the Income Tax Act 2007, the following amendments have been made:
    • the reference in section RC 16(2) of the Income Tax Act 2007 and section MB 15(2) of the Income Tax Act 2004, to "preceding tax year" has been replaced by "preceding tax year and corresponding income year"; the reference to "whole tax year" has been replaced by "whole income year"; and
    • the reference in section RC 16(5) of the Income Tax Act 2007 to "the tax year before" has been replaced by "a tax year earlier than".
  • When a taxpayer does not file a GST return for 60 days after the due date, he or she is required to discontinue use of the ratio method. However, taxpayers can apply to the Commissioner to continue to use the ratio method if the failure was due to circumstances beyond their control and they had a reasonable justification or excuse for the failure. Currently, the application must be in writing. However, an amendment has been made to section RC 17(4)(a) of the Income Tax Act 2007 and section MB 15(8)(a) of the Income Tax Act 2004 that allows taxpayers to apply by phone or in writing.
  • A minor amendment has been made to section RC 18 (2) of the Income Tax Act 2007 and section MB 17(2) of the Income Tax Act 2004 to correct an incorrect cross-reference. The reference to subsections (3) and (4) has been replaced with references to subsections (4) and (5).
  • An amendment has been made to section RC 18(4) of the Income Tax Act 2007 and section MB 17(4) of the Income Tax Act 2004 that allows taxpayers who have elected to use the ratio method to subsequently decide, before the first instalment, not to use the ratio method. The amendment ensures that taxpayers who decide not to use the ratio method before the first instalment, for the purposes of the use-of-money interest rules, they are deemed never to have elected to use the ratio method.
  • Section RC 19(2) of the Income Tax Act 2007 and section MB 18(2) of the Income Tax Act 2004 allows taxpayers who use the GST ratio method to calculate their provisional tax liability to adjust the calculation to take account of asset sales. An amendment has been made to this section to ensure that if taxpayers are on a payments basis for GST purposes they can only make the adjustment to the extent that they have received payment for the asset. The calculation of the ratio for the following year will also be reduced by the value of the asset sold, and again, only to the extent that the taxpayer has received payment for the asset.
  • Sections RC 21(2) and (3) of the Income Tax Act 2007 and section MB 20(2) and (3) of the Income Tax Act 2004 have been amended to provide that when the due date for the payment of provisional tax would normally fall in April, the due date will move to 7 May. This is to allow additional time for businesses and tax agents to file GST/provisional tax returns previously due during the Easter period.
  • Changes have been made to section RC 25(6) of the Income Tax Act 2007 and section MB 24(5) of the Income Tax Act 2004 which deal with consequences resulting from changes in balance dates. When, as a result of a change in balance date, a taxpayer changes from provisional tax dates in even months to odd months or from odd months to even months, the last period before the change in balance date will be for a part-period. The amendment ensures that the due dates for the payment of provisional tax for the part-period is 28 days after the end of that period unless the part-period ends in November, when the due date will be the 15 January, or the part-period ends in March, when the due date will be 7 May.
  • Taxpayers who pay GST six-monthly and subsequently cancel their GST registration are required to change their provisional tax payment dates and move from two provisional tax payments to three. An amendment has been made to section RC 26(5) of the Income Tax Act 2007 and section MB 25(5) of the Income Tax Act 2004 to allow taxpayers to specify that the change in payment date takes effect from a future date, to align with the date they cancel their GST registration.
  • Schedule 13, part B of the Income Tax Act 2004 and the Income Tax Act 2007 has been amended to correct a drafting oversight. In the first column of the table for GST ratio taxpayers, the reference to "7-" should be "7-8".

Application date

The amendments apply from the beginning of the 2008-09 income year.

Changes to the Tax Administration Act 1994

Sections 120KC(1)(b), 120KD(1) and (2) and 139C(2)(ab)

Key features

  • Section 120KC(1)(b) has been amended to provide that for the purposes of the use-of-money interest rules, a taxpayer's residual income tax for a year is payable in two instalments on:
    • dates specified in columns C and F of Schedule 13, Part A of the Income Tax Act 2007 if the taxpayer pays GST on a six-monthly basis; and
    • dates specified in columns D and F of Schedule 13, Part A of the Income Tax Act 2007 if they begin business after instalment B and more than 30 days before instalment D.
  • Section 120KD has been amended by:
    • correcting a cross-referencing error in subsection (1) by correctly referring to both sections 120KE(1) and (3); and
  • Section 139C(2)(ab) has been inserted to provide a late payment penalty on late payments of provisional tax by taxpayers who use the GST ratio method of calculating provisional tax. Taxpayers who fail to pay on time will be liable for a late payment penalty on the lower of the actual ratio for the year or the ratio that applied at the due date. The late payment penalty will be imposed after the end of the income year when the actual ratio for the year is known.

Application date

The amendments apply from the beginning of the 2008-09 income year.

Changes to the GST Act

Section 17(1)

Key feature

Section 17(1) has been amended by inserting new subsection (1B) which sets out the due date for special GST returns. The new subsection provides that the due date for special returns is the 28th of the month following the month in which the relevant sale was made. However, the due date for special GST returns for the November and March periods is 15 January and 7 May respectively.

Application date

The amendment applies to taxable periods ending on or after 30 November 2007.