In April 2016, the Prime Minister announced a package of proposals to simplify business tax, many of which will benefit small and medium-sized businesses. Some of the key tax proposals include:
A new pay-as-you-go option for paying provisional tax for small businesses with less than $5 million annual turnover. This will give small businesses an alternative to the current system which requires three annual provisional tax payments. In order to take advantage of the proposal, businesses will need to use a cloud-based accounting system linked to the Inland Revenue such as Xero.
Changes to the ‘use-of-money interest’ rules that govern the interest paid to taxpayers for overpayment of tax and interest charged for underpayment. The practical effect is that the changes will eliminate or reduce use-of-money interest for the majority of taxpayers.
Contractors will be able to elect their own withholding tax rate to better reflect their circumstances and reduce the impact of provisional tax.
Certain penalties will be removed, including the current 1% monthly penalty for new debt. However, immediate penalties and interest charges for late payments will still apply.