Cheat sheet: Provisional tax and debit UOMI rules

Maddy Green (right), Client Director

With returns for the 2024 tax year finalised, you’ll now know which clients need to set up arrangements with Tax Traders to top up any provisional tax shortfalls.

But how do you ensure you’re buying tax at the correct dates to eliminate use of money interest (UOMI) and, if applicable, late payment penalties on your client’s account?

• Standard uplift – RIT less than $60,000 (‘safe harbour’)

• Standard uplift – RIT of $60,000 or more

• First year in business (‘new provisional taxpayer’)

• Estimation method
• GST ratio method
• Accounting income method (AIM)

This will allow you to quickly determine what your client needs to buy (and on which date), so you can wrap up their 2024 income tax obligations.

Standard uplift – RIT less than $60,000 (‘safe harbour’)

Clients on the standard uplift method whose residual income tax (RIT) for the year is less than $60,000 will not incur UOMI if the final balance to satisfy their RIT is paid by their terminal tax date.

Your client will be exposed to UOMI after their terminal tax date if they haven’t paid their RIT in full by then.

This means that in situations where a provisional tax instalment has been missed or underpaid, it may be more cost-effective for your client to pay the tax amount and late payment penalties directly to IR on or before their terminal tax date, rather than buying tax from Tax Traders.

Standard uplift – RIT of $60,000 or more

Your client will need to buy any shortfall to satisfy their RIT at their final provisional tax instalment date for the 2024 tax year to avoid UOMI, assuming they paid the uplift amount on time and in full at all prior instalment dates.

If provisional tax is underpaid at any instalment date prior to the final instalment date, your client will need to top up that instalment to the lesser of:

• The amount due under the standard uplift calculation, or
• A third (or other portion where the number of instalments payable for the year is not three) of the actual RIT for the year.

First year in business (‘new provisional taxpayer’)

Different rules apply to a client in their first year of taxable activity whose RIT is $60,000 or more.

In this situation, IR will expect their RIT to be paid evenly across the number of instalments they could have paid during the year and will charge UOMI on any shortfalls from those instalment dates. The number of instalments your client could have paid during their first year in business will depend on when they started their taxable activity.

Clients must meet certain criteria to be considered a new provisional taxpayer. We recommend you give us a call to discuss if you have any questions.

Estimation method

IR will expect your client to pay their 2024 RIT in equal instalments if their RIT is more than $5,000, regardless of when the estimate for the year was filed.

Your client will need to top up any instalment where the amount they paid was less than a third (or other portion where the number of instalments payable for the year is not three) of their 2024 RIT to ensure they’re not charged UOMI.

GST ratio method

If your client has paid all GST ratio instalments on time and in full, they will not incur UOMI if any final balance to satisfy their 2024 RIT is paid by their terminal tax date.

Your client will be exposed to UOMI and late payment penalties after their terminal tax date if they haven’t paid their RIT in full by then.

In the event your client has missed or underpaid a GST ratio method payment, they will need to top up the relevant instalment to eliminate UOMI showing on their account.

Accounting income method (AIM)

Unfortunately, tax pooling legislation currently prevents your client from buying a missed or underpaid AIM instalment from Tax Traders.

However, we can assist with terminal tax payments for the 2024 tax year or reassessments. 

Need help?

As always, if you require any assistance completing your clients’ 2024 arrangements, feel free to contact the team at Tax Traders.

We’d be happy to work through any situation with you to ensure your clients are buying the right tax amounts at the right tax dates.