A Week in Review

Provisional Tax QWBA’s

IR has released two QWBA’s which both provide commentary on specific provisional tax issues.

The first is QB 19/03, which considers the provisional tax implications when an employee receives a one-off payment during an income year with no tax deducted, which has the consequence effect of an end of year RIT of more than $2,500.

The answer to a large extent then depends on whether the RIT is also in excess of $60,000. Where this is the case, then there is potentially exposure to use of money interest (UOMI) if the person has not paid any provisional tax instalments for the relevant income year (in effect this will occur if the person does not pay the full amount of RIT by their final instalment date – usually 7th May for a March balance date taxpayer). 

If however, the RIT amount is less than $60,000, then provided the person pays the RIT amount on or before their terminal tax due date (usually 7th February unless they have a time extension), there will be no exposure to UOMI.

Under the new income tax return filing rules for individuals, whether the person will need to notify IRD of the one-off amount received, will depend on whether the particular item of income is reportable income or not. If it is, then the amount received should already be included in IR’s automatic annual assessment of the person, and this assessment will also indicate that the person should be paying provisional tax for the following income year as well (which may or may not be appropriate for the person depending on their circumstances – in this case, the person could advise IR to amend their provisional tax calculation method to Estimation, with a nil estimated amount. The person needs to be aware of the exposures to UOMI however if their nil estimate subsequently transpires to have been incorrect).

The second is QB 19/04, which considers the provisional tax and consequent UOMI issues for a person in their first year of business.
 
Once again the answer is then determined by whether the $60,000 RIT threshold is exceeded. If the RIT quantum will be less than $60,000, then as for the previous QBWA, provided the RIT amount is paid no later than the persons terminal tax due date, no exposures to UOMI will arise.

However, if it is expected that the RIT amount will exceed $60,000, then provisional tax instalment payments in the first year of business should be made, and the number of required instalments will be determined by the commencement date of the business taxable activity. The person will be considered a “new provisional taxpayer” in this regard.

It should be noted that the rules for “new provisional taxpayers” (those persons commencing a taxable activity during the income year) are different to those outlined in the first QWBA, as the person will not be able to simply make a lump sum payment of the RIT on their final instalment date, in order to avoid UOMI. They must instead make the number of required instalments during the relevant income year as determined by their taxable activity commencement date. 

In this regard, QB 19/04 includes some commentary on the meaning of “taxable activity” and the inclusion in this respect of anything done in connection with the commencement of the particular activity (the timing of which could naturally impact on the number of provisional tax instalments required, so care should be taken in that regard.)

IR’s Accommodation Items – Item 3

This week I review the third of seven draft items recently published by IR, the commentary this time dedicated to the item on homeowners who provide short-stay accommodation to guests in their own home – PUB00303/b.

Once again it is proposed that the determination will apply from the commencement of the 2019/20 income year.

So what were the important take-outs from PUB00303/b – 

• the rules for boarders can’t be used for short-stay accommodation guests. However, similar rules are proposed which will specifically apply for short-stay accommodation hosts who rent out rooms in their own home;
• in order to be eligible to use the proposed rules, the main criteria are likely to be that rooms are rented out <100 nights per year (counting each room that’s rented out separately); no trust ownership of property unless taxpayer has themselves paid all of the property costs for the year (eg, mortgage interest or rent, insurance, rates, and repairs and maintenance); taxpayer not providing accommodation as part of a GST taxable activity; and taxpayer is a natural person;
• there will be set standard nightly costs for deductions, reflecting IR’s view of the likely average costs incurred by short-stay accommodation hosts. The proposed standard costs are $50 a night if the host owns their home, and $45 a night if the host rents their home; and,
• income from short-stay guests up to the amount of the standard costs would not have to be declared. Hosts would only need to return income in excess of the standard cost amount.