Do safe harbour and COVID-19 UOMI concessions apply if no final provisional tax payment made?

Question: 

Under the new rules relating to use of money interest (UOMI) write-offs, some provisional taxpayers will be eligible for relief from use of money interest for late payment of the final instalment of 2020 provisional tax if they have been adversely impacted by COVID-19. If this is the case, presumably they will no longer be able to rely upon the safe-harbour concessions for the 2020 year and interest may apply from each instalment date.

Taxpayer A will have residual income tax (RIT) below $60,000, while Taxpayer B will have RIT above $60,000. Both will miss paying the third instalment of 2020 provisional ("P3") tax due to the affects of COVID-19 on their businesses

Will these taxpayers be eligible for UOMI relief for all instalments due for the 2020 year if they are unable to pay the final instalment of provisional tax due on 7 May 2020?

Answer:

For provisional taxpayers with residual income tax (RIT) that is less than $60,000, UOMI will apply from the terminal tax date when, among other criteria, they have paid all instalments under the standard uplift methods on or before the instalment dates for the tax year. Accordingly, a taxpayer with RIT under $60,000 that does not pay P3 for the 2020 year will not be eligible for the safe harbour from UOMI.

For provisional taxpayers with RIT in excess of $60,000 or those with RIT under $60,000 who fail to make all payments by the due date, use of money interest applies from P3 where, among other criteria, they pay their provisional tax instalments for the tax year other than the last one, on or before the relevant instalment dates for the tax year in accordance with the standard uplift method.

Therefore, both Taxpayer A and Taxpayer B will be subject to UOMI from the P3 due date should they fail to pay P3 by the due date. Neither Taxpayer A or Taxpayer B will be subject to UOMI with respect to their earlier provisional tax payments, assuming they used the standard uplift method and payment was made in full and by the due date.

Assuming P3 is due and payable after 14 February 2020 (which is the relevant date in new s 183ABAB of the Tax Administration Act 1994) Taxpayers A and B will be eligible to seek remission of UOMI payable on that instalment. The discretion to remit interest will only be exercised if a taxpayer’s ability to pay by the due date is significantly adversely affected by COVID-19. To obtain this write-off, Taxpayers A and B must contact Inland Revenue as soon as practicable and make payment of the unpaid tax as soon as practicable either as a lump sum or by entering an instalment arrangement with Inland Revenue.

References:

Tax Administration Act 1994, ss 120KBB, 120KE, 183ABAB

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