* conditions apply, as always!
In certain circumstances, you can get a tax discount from the IRD. Here are the conditions.
- You’re a sole trader or a partner in a partnership*
- You’ve started a new business
- Most of your income** comes from the business
* Trusts, companies, charities, and not-for-profit entities cannot take advantage of the discount. It applies only to taxpayers who are individuals.
** Income does not include receiving a shareholder salary
About your current tax situation
- You didn’t need to pay provisional tax in the current tax year, and haven’t had to the past four years
- You haven’t received the discount in the past four years
When and how to get the discount
- You need to make a voluntary tax payment before the end of the income year – there is no minimum requirement. For example – we’re now in the 2022 tax year. Your voluntary payment must be made before 31 March 2022.
- Choose to receive the discount before the tax return is due for the income year. Using the 2022 year as an example, you would need to let the IRD know by 31 March 2023 if you have an Extension of Time (EOT). If you don’t have the EOT, you have until 31 July 2022.
If you make a voluntary payment, please let us know via your accountant or our friendly Support team. We’ll make a note of it in our system and click on the required box when your tax return is filed.
How do I know if I have EOT?
If you have a tax agent (such as Beany) and have been paying your tax on time with the IRD, you’re likely to have the extension. It’s almost always granted automatically when you’re added to a tax agent’s list – you won’t have had to specifically apply for it. For those without a tax agent, you’ll need to make an application to the IRD.
The IRD has the right to withdraw your extension for consistent late payments or late filings, even if you have a tax agent.
- 2022 is your first year and you meet the necessary requirements for the discount. Based on your income and expenses, you think tax will be around $15k.
- You decide to pay $11k on 30 March 2022 to take advantage of the discount. The discount would be $737.
- When your 2022 tax return is prepared, your actual tax for the 2022 year turns out to be $16k.
- Your remaining tax to pay is:
- Full tax charge for 2022 – $16,000
- Less tax already paid – $11,000
- Less discount on the tax already paid – $737
- Payable to the IRD $4,263 by 7 April 2023
Because it’s a pretty good interest rate, you may think it’s possible to pay $100k (instead of the $11k above). Maybe you’d receive a discount of $6,700 (refund) which is a lot better than you’d get from a bank.
The discount is based on 6.7% of your deposit, or based on your actual tax to pay…whichever is the lower.