Tax Updates: 12 August 2024

Welcome to this week’s review of tax issues where Richard comments on what’s been happening in the world of tax over the past week. If you have a question or would like a second opinion on any national or international tax issues, please contact Richard via email at [email protected].

Changing balance dates

Inland Revenue (IR) has recently issued the Standard Practice Statement (SPS) 24/01, titled ‘Requests to change a balance date.’ The SPS is effective from July 30, 2024, and replaces the earlier version – SPS 18/02.

The SPS discusses scenarios where the taxpayer (I note the reference to ‘customers’, but I’d question whether any of us actually have a choice of dealing with IR or not!) wishes to:

• adopt a non-standard balance date; 

• change from a non-standard balance date back to March 31; or,

• change from one non-standard balance date to another non-standard balance date.

Individuals only earning ‘reportable income’ (types of income where tax has been withheld at source by the payer, such as a salary or wages) cannot request a change of balance date, and neither can multi-rate Portfolio Investment Entities (PIEs) unless they calculate and pay tax using the provisional tax calculation option in s.HM 44 of the Income Tax Act 2007.

Identical to prior statements on the topic, there is a list of scenario examples where approval for a change is likely to be granted and those where such approval is unlikely to be forthcoming. On the ‘likely’ side of the fence include:

• allowing a taxpayer to adopt an agreed industry balance date;

• allowing a shareholder-employee to use the same balance date as the company from which they derive their primary source of income;

• allowing a subsidiary company to use the same balance date as the parent company; and,

• allowing an executor or administrator of an estate to adopt the date that coincides with the date of death of the deceased customer as the balance date for the continuing estate.

Note that IR will usually only agree to an annual balance date that is the last calendar day of a month rather than part-way through a month. Exempt from this is an executor or administrator of a continuing estate who elects to adopt a balance date that coincides with a deceased taxpayer’s date of death.

Scenarios where approval is unlikely to be given include:

• a reason for the change is to defer the payment of tax or to take earlier advantage of a tax incentive or concession than would otherwise have been the case had no change of balance date occurred;

• the request has been made because the taxpayer wants to smooth out administrative workloads in its business (this does not include seasonal businesses wishing to adopt a balance date that is consistent with the natural end of their income year) and,

• the non-standard balance date is the anniversary date of the commencement of the business unless that date coincides with an agreed industry balance date.

The SPS also provides commentary on a number of factors IR will consider when a request for a change of balance date is received and sets out the appropriate method the taxpayer should use (telephone/myIR, etc.) when making their request.

The SPS concludes with a commentary on transitional period returns and the consequential effects of the change on GST and provisional tax filing obligations.

SPS 24/01 is a 25-page document, so it is probably more of a breakfast read to accompany your porridge than something to do at morning cocoa time.

This article was originally published through the ‘A Week In Review’ newsletter. If you would like to receive Richard’s tax updates every Monday morning, you can subscribe here.