Use-of-money interest methodology and rate changes

The Taxation (Use of Money Interest Rates Setting Process) Regulations 2009, made on 2 February 2009, amend the prescribed process or methodology used in setting the use-of-money interest underpayment rate.

The process is set using the Reserve Bank of New Zealand's 90-day bank bill rate plus 450 basis points (4.5%). Previously, the process was contained in the Taxation (Use of Money Interest Rate Setting Process) Regulations 1997 and was set using the Reserve Bank of New Zealand's business base lending rate plus 200 basis points (2%).

The methodology for calculating the overpayment rate remains unchanged; it is also based on the Reserve Bank of New Zealand's 90-day bank bill rate, minus 100 basis points (1%).

The Taxation (Use of Money Interest Rates) Amendment Regulations 2009 also made on 2 February 2009 reduced the use-of-money interest underpayment rate from 14.24% to 9.73% and the overpayment rate from 6.66% to 4.23%. These rate changes apply from 1 March 2009.

These changes were part of the government's proposed assistance package for small and medium enterprises that was announced on 4 February 2009. Other initiatives in that package (other than the reduction in the FBT prescribed interest rate applying to low-interest, employment-related loans) are contained in the Taxation (Business Tax Measures) Bill introduced to Parliament on 10 February 2009.

Taxation (Use of Money Interest Rates Setting Process) Regulations 2009 (SR 2009/6)

Taxation (Use of Money Interest Rates) Amendment Regulations 2009 (SR 2009/7)