Tax Updates: 30 June 2025

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 richard@gilshep.co.nz.

Provisional tax use of money interest

It was another relatively quiet week in terms of items crossing my desk that could have been considered of interest to the majority. While we did see the release of Inland Revenue’s (IR) 132-page “Draft of Inland Revenue’s long-term insights briefing 2025,” I’m not sure if I could accurately categorise this as being of general interest (no offence intended to those involved in its drafting).

So, similar to last week’s edition, I thought I would take the time to address an issue where, based on my recent discussions with some of you, there is still confusion about the correct application of the rules. I hope to, therefore, educate the presently uneducated.

This week’s topic is provisional tax use of money interest (UOMI) in the context of provisional tax underpayments.

For many years, we have been dealing with a regime, where if you didn’t get things completely right, your client was often exposed to having UOMI charged from their first provisional tax instalment date (7^th July in the good old days, more recently updated to 28^th August for those on a standard 31^st March balance date).

However, effective from 1^st April 2017, things became a little more taxpayer-friendly.

As long as you used the standard method (usually 105% of last year’s residual income tax (RIT)) as the basis to calculate your provisional tax instalments, and you ensured that your first two instalments were paid on time, then UOMI would only be charged from the 3^rd instalment date (usually 7^th May for those on a standard 31^st March balance date).

As the 7^th May instalment date came some five weeks post your income year end, you were now provided with the opportunity to quickly calculate your RIT for the year just finished, determine what tax would be payable on that amount, and then ensure that the payment made on the 7^th accounted for any shortfall. Undertaking this exercise would then essentially eliminate your potential exposure to UOMI costs.

Even more taxpayer-friendly were the new rules, which were to apply to so-called ‘safe harbour’ taxpayers, a category that now includes both natural persons and non-individual taxpayers. If you paid your provisional tax liability for the year under the standard method (or had no provisional tax liability because your last year’s RIT < $5,000), and you current year RIT was less than $60,000, then you would only be exposed to UOMI now, if you did not pay the calculated RIT on your terminal tax date (usually 7^th April of following year for those registered with a tax agent).

I’ve experienced a few panicked communications in recent weeks (particularly surrounding the 7^th of May), where those making contact did not appreciate the $60,000 RIT threshold.

These rules do not apply to those adopting AIM (Accounting Income Method), where there is usually no UOMI exposure, or the GST ratio method.

Hopefully, for most of you, the above has provided no benefit because you were across the 2017 changes – for the rest, perhaps I’ve achieved my goal of educating the uneducated.

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.