22 December 2007

NEWSLETTER FROM PAUL ENOKA CHARTERED ACCOUNTANTS LTD

COMPANY TAX REDUCTION

 

The tax rates for companies will be reduced to 30% from the start of the 2009 tax year (for 31 March balances this is 1 April 2008 ). When dividends are declared out of these profits, they will carry an imputation credit of only 30%. The Government realises there are accumulated imputation credits from past years and these represent tax paid at 33%.   If you want to use up these 33% credits, you have until 31 March 2010 to do so. After that, all tax credits attaching to dividends will be at 30%.

 

If a family trust owns most of your company shares, consider paying the dividends as soon as possible, unless you think the tax rate for trusts will be reduced .If individuals own the company shares it could be wise to wait for the next Budget to see if you can declare a dividend in a lower tax year.

 

 

PAY YOUR PROVISIONAL TAX AND YOUR GST AT THE SAME TIME

 

Provisional tax is a way of paying your income tax in instalments through the year. The amount you pay is credited against your end of year tax to pay. If your current year’s residual income tax (RIT) is more than $2,500 you will need to pay provisional tax in the following year. RIT is the amount of income tax to pay based on the total tax payable, less any rebates and tax credits you may be entitled to.

 

The IRD is making changes to the way we pay our provisional tax.   For taxpayers with standard balance dates the changes will apply from 1 April 2008 .   This applies to all taxpayers who come within the provisional tax regime.

 

The new changes:

 

Align provisional tax payment dates with GST payment dates; and Introduce the GST ratio option for calculating provisional tax instalments.

 

Staying with the three payment system for provisional tax

 

If you decide to remain with the existing system, using the uplift or estimate method, your provisional tax dates will change.   The three payment dates will fall on the 28 ^th day of the 5th, 9th and 13 ^th months of your income year.   The exceptions to these dates are where your provisional tax dates would fall in December or April.   In this case the payments are due 15 January and 7 May respectively. These dates are designed to allow extended time for Christmas and Easter.

 

Companies, Trusts and Sole Traders on 1 or 2 monthly GST

 

Taxpayers who are GST registered can elect to pay Provisional Tax at the same time as their GST payments using the GST Ratio Option. This method allows taxpayers to base their provisional tax payments on a percentage of their GST taxable supplies. This option is not available to partnerships, or to taxpayers who are not registered for GST. The ratio is calculated by dividing your Residual Income Tax ( RIT ) for the preceding tax year by your GST taxable supplies for that year i.e.

 

RIT for previous tax year /Total GST taxable supplies for previous tax year

 

  Once the ratio is worked out you then multiply this by your GST taxable supplies for the current period you are preparing to determine the relevant provisional tax payable.

 

Taxpayers who file GST returns every two months will then pay provisional tax on the due date of each GST return for the year. The amount actually payable will be calculated based on the taxable supplies made in that period. Taxpayers who file GST returns monthly will make a provisional tax payment, under the ratio method, on the same dates above for two monthly GST filers. This method can be useful for businesses that have high degrees of seasonality so they can align their tax payments with their cashflows. If you use the Ratio Option, Use of Money Interest (UOMI) will not apply to underpayments or overpayments of tax unless the tax is paid late. The downside is that you have to pay both GST and provisional tax on the same day. The Ratio Option is not available to taxpayers who have RIT greater than $150,000 or less than $2,500. In order to use the GST ratio option an election needs to be made with the IRD before the start of your income year.

 

Companies, Trusts and Sole Traders on 6 monthly GST .

 

These taxpayers only pay their provisional tax twice a year on the same day they pay GST. The GST ratio option is not available to taxpayers that file GST returns six monthly. They have to use the existing the uplift and estimate methods.

 

 

Due dates for your provisional tax if you only pay provisional tax and not GST

 

If you...	then your provisional tax due dates will be...
have a standard 31 March balance date	28 August, 15 January, 7 May.
don't have a standard 31 March balance date	the 28th of the: 5th ,9th , and 13th month after your balance date

 

Due dates for your provisional tax if you pay both provisional tax and GST

If you pay GST every six months – you will make two provisional tax payments.

If you pay GST every month or every two months and use the standard or estimation options – you will make three provisional tax payments.

If you use the ratio option – you will make six provisional tax payments

 

If you have a standard 31 March balance date your provisional tax due dates will be:

 

No of Instalments
2			28 October			7 May
3		28 August		15 January		7 May
6	28 June	28 August	28 October	15 January	28 February	7 May

 

Summary:

 

The provisional tax changes give more time to pay your tax instalments. Those who are eligible to and decide to take up the ratio option need to make an election before the start of the next financial year. We’ll be talking to you about which option best suits you before this date ( 1 April 2008 ) so you can make the appropriate decision to suit your business

 

ANOTHER YEAR HAS PASSED

 

Yet another year has passed. All of us at Paul Enoka Chartered Accountants Ltd would like to take this opportunity to thank you for your business and wish you a safe and relaxing holiday season with family and friends. Our office is closed from Friday 21 December 2007 and will re-open again on 22 January 2008 . We regret any inconvenience this may cause.  

   

Although every effort has been made to ensure the accuracy of this newsletter, the information is necessarily generalised. Clients are therefore requested to seek specific advice and not rely solely on the above, if they are interested in any matters mentioned.

Paul Enoka Chartered Accountants Ltd

PO Box 31-348 Lower Hutt

Phone (04) 939-7977