Changes to Payment Dates for GST and Provisional Tax

Changes will occur as from 1 April 2006 to the dates when you make provisional tax and GST payments to the Inland Revenue Department.
Even though the law has not yet been passed, we expect there will be no changes to what has been publicised. It affects all taxpayers. How it will apply to you depends upon how you currently pay your taxes.
If you have a 31 March balance date and currently pay provisional tax but you are not registered for GST then your provisional tax payments will be on 28th August, 28th December and 28th April. You can also make other voluntary payments at any time.
If you have a 31 March balance date, are GST registered and file six-monthly GST returns, then you will make two payments of both provisional tax and GST on 28th October and 28th April for the periods ending 30 September and 31 March. You can also make other voluntary payments at any time.
If you have a 31 March balance date and currently file GST returns every two months, then you will pay provisional tax and GST on the 28th of April, June, August, October, February, and 20th of January. (NB. The payment that is otherwise due on 28th December is shunted to 20th January, as it would otherwise fall within a traditional holiday period. This date is currently set at 15th January).
If your GST return period does not align currently with your balance date then it will have to be brought into line. If you are ever eligible to deregister for GST, such as if your sales fall below the compulsory registration threshold of $40,000 in 12 months, then you will revert back to paying provisional tax three times a year, with effect from the date you ceased to be GST registered.
There is a new option that will apply from the beginning of the 2007/2008 income year where you can pay your provisional tax based on the current year’s income instead of having it calculated on the income of last year. This option only applies if you are set up to pay GST either every month, or every two-months and where your residual income tax for the previous year was not more than $150,000. You will then make six provisional tax payments during the year which will be a percentage of your GST taxable supplies in that two monthly period, after adjusting for any large asset sales. In this way your provisional tax will closely follow your inwards cash flow, and this should be helpful if your income is seasonal.

Leases

There are some changes coming to the way tax applies to the leasing of those assets, such as motor cars, that are used in business. Again, the law has not yet been passed, but we expect it to proceed in the way that it has been publicised.

First, business motor cars are sometimes leased from a shareholder-employee. Some lease documents allow for the lease to be “suspended” whenever there is any private use, the purpose being to avoid any fringe benefit tax. In such arrangements the private running does not become an income tax deduction so there is no loss of tax to the government. Nevertheless, the government does not see it this way and wants to collect fringe benefit tax as well. If the law is passed (which will be after the election) any leases with the “suspension clause” will need to be reviewed to ensure they comply with the law.

Next, some motor vehicle leases are reviewed each year and the new value at the start of each year is used to calculate fringe benefit tax. These may be 1 x 1 x 1 leases. The cost price of the vehicle as at the start of the lease is used to do the calculations.

When you are the lessee (the hirer) then you need to know whether the lease agreement for the asset is caught within the definition of a hire purchase agreement. This will be the case if you have the option to purchase the leased asset, in which case you cannot claim the lease payments as an income tax deduction. Instead, for both income tax and GST the asset must be treated as if you have purchased it under a hire purchase agreement. So if you want to claim all of the lease payments as an income tax deduction you must see that the lease agreement does not give you any right of purchase . An option to purchase is not the same as residual value. Whilst most lease agreements will contain a residual value clause, this is not an option to buy at that price unless it is stated as such

On the other hand, the lesser (i.e. the owner) must know whether the lease qualifies as a credit contract. If it is then GST is imposed upon the sale price but if not then GST must be imposed upon every amount that is payable, including the financial and administration charges. So, if you own property that you lease to others then your lease agreements need to be checked out by your accountant. The law in relation to credit contracts has changed as from 1 April 2005, and there could be serious tax problems arising if insufficient GST is collected.

_{All information in this newsletter is, to the best of the author’s knowledge, true and accurate. No liability is assumed by the author or the publisher for any losses suffered by any person relying directly or indirectly upon this newsletter. You are advised to consult professionals before acting upon this information}

Greg Eden |Eden Associates Ltd

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