New tax rules coming 18 May 2016

From 1 April 2017 there are going to be a number of significant tax changes. Proposals include the following:

Use of Money Interest (UOMI)

  • UOMI is a charge on higher incomes for short paid tax.
  • Currently, if the tax on your personal income for the year is less than $50,000, after deducting all other taxes paid as you go, you are not liable for UOMI. This threshold is to be increased to $60,000, which is equivalent to getting $209,333, assuming no tax has been deducted from the income.
  • Companies and trusts are caught for UOMI if their tax liability is more than $2,500 tax. This threshold is to be lifted to $60,000. Companies will then be able to earn $214,285 before UOMI will apply and trusts $181815, assuming no tax deductions at source.
  • UOMI will no longer be charged on the first and second instalments of provisional tax, so long as the tax is paid based on the standard calculation method.
  • UOMI will still apply to the third provisional tax payment.

PAYE for the self-employed - AIM

  • Businesses having sales of less than $5m are to be allowed to use their accounting software to calculate their approximate income (and hence tax) when they prepare their GST returns. IRD calls this the Accounting Income Method (AIM). 1 and 2 monthly GST payers will be permitted to pay their income tax with their GST. The accounting software will automatically generate the reports needed  for both income tax and GST. 6 monthly GST payers, using AIM, will have to pay tax 2-monthly. Returns will be filed electronically. This change is scheduled to start from 1 April 2018.

Withholding tax

  • The withholding tax rates are often too high. It is proposed, subject to certain rules, to allow people to select their own withholding tax rate.
  • The income of contractors hired out through labour hire firms, like those in the IT industry, will be subject to withholding tax deductions from their income.

Tax penalties

  • The present system for penalising late tax payments is too tough. The present system is to charge 1% for a day late, then 4% after four more working days and thereafter 1% per month. The 1% per month is to go.

Private use of motor vehicles

  • The system of adjusting for private use of motor vehicles is to be overhauled for “close” (roughly this means family) companies.
  • The 5000km limit for using mileage rates is to be increased, using a lower rate for mileage in excess of 5000km. IRD will set the rates, annually.

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