TIB - May 2019
In this issue: Taxation (Annual Rates for 2018–19, Modernising Tax Administration, and Remedial Matters) Act 2019, Order in Council - Income Tax (Minimum Family Tax Credit) Order 2018, QB 19/01, QB 19/02, SPS 19/02, OS 19/02, Legal decisions - case notes.
CorrectionsExample 9 published in the Simplifying tax administration – individuals income tax item on page 14 is incorrect.
Lauren, Olivia and Ruairi have a brother called Jeff who also works at the accounting firm and earns salary and wages. On 1 April 2018, Jeff also commences a start-up technology venture, which he operates in his own capacity. Although Jeff is only working on his venture part time, it is successful and he earns an additional $200,000 for the 2018–19 tax year.
Inland Revenue reviews Jeff’s income information at the end of the 2018–19 tax year and, based on the information held for Jeff, the Commissioner is satisfied that the information contained in his pre-populated account correctly and completely records Jeff’s income for that tax year. Inland Revenue therefore finalises Jeff’s pre-populated account and it becomes an assessment on 15 May 2019.
New section 22G(3) provides that a qualifying individual, or an individual who is treated as a qualifying individual, may amend the income information in their final account at any time before their terminal tax date for the tax year. Although Jeff clearly has “other income” that he needs to provide, he has been treated as a qualifying individual and therefore has until his terminal tax date (7 February 2020) to provide any additional information and amend his tax position for the year.
Jeff logs into myIR on 1 February 2020 and updates his tax position to include an additional $200,000 in income and finalises his account for the tax year. Although this is treated as a new assessment for the purposes of section 22G(3), Jeff is liable to pay provisional tax as he derived untaxed income during the tax year which caused him to have residual income tax (RIT) of more than $2,500 at year-end.
Because of his level of untaxed income, Jeff’s RIT exceeds $60,000 and therefore he does not qualify for the provisional tax safe harbour in section 120KE.
As Jeff does not meet the definition of a natural person with an initial provisional tax liability (as he continues to derive income from employment), he can use the interest concession rules in section 120KBB. This means that Jeff’s RIT will be due and payable on the date of his last instalment of provisional tax for that year (being 7 May 2019 for Jeff as he has a standard 31 March balance date)as he was not liable to make any provisional tax payments during the year (because his RIT for the prior year was less than $2,500).
As Jeff did not pay his current year RIT amount on the 7 May 2019, he is subject to UOMI on the outstanding RIT from the day after that date.