Findex: Tax planning for June balance dates

Michelle Turfrey, Findex Accounting & Business Advisory Partner.

OPINION

With most of our farming clients having a June 30 balance date, now is the time to consider your provisional tax requirement for 28 July 2024 – the final provisional tax instalment for the financial year ended June 30, 2024.

With returns, particularly in sheep, being down on the 2022/2023 year and still facing rising costs, many farmers will likely have incomes that are less than that of the 2022/2023 year.

Depending on your provisional tax basis, it may be worth reviewing your final instalment of tax due on July 28.

Many of you will be provisional taxpayers (assuming for the 2022/2023 year you were left with $5000 or more tax to pay after – referred to as residual income tax). The goal is to align the tax you pay as provisional tax as close as possible to the tax on your income calculated at year end.

There are four ways in which provisional tax can be calculated. The option you choose will depend on your personal circumstances. The methods available are:

• Accounting Income Method (AIM).
• Standard option.
• Estimation option.
• Ratio option.

For the purposes of this article, I will focus on the most popular methods - the standard option and the estimation option - for the instalment due July 28.

These assume that your income will increase from year to year and is calculated as 105 per cent of the previous year’s income tax payable.

The dates the payments are due depend on two things –

• Your balance date,
• How often you file GST returns.

June balance dates for those who file GST returns every two months have the following provisional tax dates:

November 28

March 28

July 28

June balance dates for those who file GST returns every six months have the following provisional tax dates:

January 28

July 28

It is the July 28 provisional tax payment that may be worth reviewing particularly if your income is likely to be less than the 2022/2023 year.

This is when you would estimate the final instalment to align the tax paid through provisional tax instalments with what the estimated income tax will be for the 2023/2024 year.

This can come with risks if you underestimate your tax payment, however, it can be advantageous from a cashflow perspective if your final instalment is significantly less than what is calculated under the standard option.

It pays to check that your earlier instalments of provisional tax were paid on time and recorded at IRD as being paid on time.

If you have any late IRD payments, it is likely that you will have incurred penalties and interest so it could be worth talking to your adviser about utilising someone like Tax Management New Zealand or Tax Traders to assist with reducing this cost.

If you think your income for the 2023/2024 year is significantly different – up or down - contact your adviser to discuss reviewing your final provisional tax instalment.

To speak with an experienced tax advisor contact us at findex.co.nz