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Calculating the tax adjustments

Can the right tax adjustments be made?

Traditionally tax adjustments are only identified and calculated at year end. However, most of the information required is available at the time it is entered into software and doesn’t need to wait until year end. 

We are interested in ensuring there is an agreed way of treating these adjustments for tax purposes. This commonality will improve certainty and accuracy of the calculations. It will also ensure that there is no benefit or disadvantage to taxpayers depending on what brand of software is used.

Do you think it’s possible to make the right tax adjustments during the year to result in an accurate payment of provisional tax?

Comments

Steve Goodman
No it won't if Xero calculates it when we do GST

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2 months ago
John Reilly
Xero will adjust to cater for this scheme. There may be some pain in the short term of course.

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2 months ago
Alastair Bell
great idea - yes I can cope with this

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2 months ago
Alastair Bell
yes, easy

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2 months ago
Jamaliyeh drake
This can be done to a certain degree as there are other year end adjustments such as depreciation and asset write off that takes place at the end of the year. as long as there is a washup at the end of the year where we pay the shortfall without incurring penalty or get refund for overpayment then it can work

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2 months ago
Alex Fraser
Yes, it would be additional work, but I would be prepared to learn what I need to do to make this happen in order to offer more certainty and security around paying tax. The current system is like a dark cloud hanging around , it's stressful, complex and doesn't allow for the notable fluctuations I experience in business. Despite being diligent with putting tax money aside, I seem to always have suprises.

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2 months ago
Brian Bell
No, because I keep good records now. The devil will be in the detail as to what and how the information will be required

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2 months ago
Angie
I keep my accounting records up to date anyway

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2 months ago
Ben Shore
Yes definitely calculating tax as you go is a good idea. My belief is it should tie in with the GST return to cut down on compliance. Included in the return would be a box for any GST exempt income (eg residential rent, interest, dividends, depreciation recovered, etc) and a box for any GST exempt expenses (eg. wages, interest, bank fees, etc). The resultant two monthly profit is what income tax should be paid on. Then when the end of year accounts and tax return is prepared any wash up should be paid as terminal tax and under a certain % of total tax the terminal tax should be interest free (eg. terminal tax under 10% of total tax on income).

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2 months ago
Dave Braddock
Yes or even 6 monthly if that is the cycle that you use for GST.

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2 months ago
Darren Cottingham
Xero does all the calcs for me. I'd rather just pay the tax owing at the end of every 2-month or 3-month period so that I'm up-to-date and don't have to be concerned with keeping a big chunk of cash back at the end of the year in order to pay tax.

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2 months ago
Chantelle Laurent
Absolutely! This is a great idea! I already have to keep my accounts up-to-date as I pay my GST bi-monthly which most small businesses do just to help manage cash-flow. So there would be no problem at all to supply this same info for provisional tax purposes. Thanks for taking such positive steps towards helping our small businesses survive and succeed. This is really great news for us all. Cheers, Chantelle

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2 months ago
Anne Johnston
The original question in your newsletter with this link asked: 'Will keeping your records up to date during the year be too much extra work for you?' The answer is no, but it is unclear whether the use of accounting software is compulsory for this system. The question on this link is: Do you think it’s possible to make the right tax adjustments during the year to result in an accurate payment of provisional tax? The answer is probably - but again, it is unclear whether the use of accounting software is compulsory for this system. I am a sole trader and do not use accounting software - but my accounting is up to date each 2 month period for gst returns. Thanks.

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2 months ago
Allan Jeffs
This OK for some businesses having a good Accounting system. Most small businesses see their Accountant once a year with a box of data of varying quality! With these taxpayers the existing Provisional tax system would be preferable. New system OK so long as it is not made mandatory.

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2 months ago
Bonnie Reece
Yes I think it would be easy for those clients who are using the accounting software Xero to be able to provide "real time" data related to their turnover. It would require either the accountant or client to reconcile transactions as they occur in real time. This could be done on a monthly basis much like PAYE which would make completion of the Annual Accounts a relatively straight forward process and allow the accountant/client a better idea of how their business is tracking in real time. For us, we already provide services much like this for approx 50% of our clients. So this data is available now. However for more traditional firms who dont utilise software in this way and only meet with their clients once a year I think this would pose issues, but making this a voluntary option would satisfy this issue. It would require some change and adjustment in the accounting field but would bring SIGNIFICANT benefit to small businesses throughout NZ. Provisional tax has some serious flaws in their structure, penalising someone in their first year of business with UOMI interest before the client has even earnt the income and before the accountant has an opportunity to realise the earnings is just not good enough. Its almost punishing compliant individuals for not being aware of the delicate intricacies your system deems applicable to apply. However for the clients that do not use an accounting programme this would be quite difficult - but again making this option voluntary covers off this issue.

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2 months ago
Justin
It sounds like a whole lot of extra work that I just don't need, lets just keep it simple..

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2 months ago
Cameron Blackbourn
I use Xero which is updated weekly. Many other small business use this, MYOB or similar, it would be very easy to pay provisional tax this way. I currently struggle with tax payments as they don't match my cash flow, by the time I pay everyone else and provisional tax on top there is often nothing left for myself. My tax return last year was about 9% of my turnover which seems pointless.

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2 months ago
Aaron
Very easy to do this. Look forward to it.

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2 months ago
Bruce Stone
Most small businesses will not be able to identify what is capital expenditure and should be depreciated and revenue items which can be expensed. Businesses using a cash book only will be required to go to a full accounting system with the added cost and extra time inputting invoices as well as payments. Reading tax literature is not a priority for small business owners so many will use "rules" which are well out of date or based on what their mate down the road told them.

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2 months ago
Lennard
I don't know about anyone here, but paying $60 odd per month for Xero is a lot cheaper/less stressful than sifting through mountains of paperwork to comply with current tax rules. I don't pay an accountant, I copy and paste my GST to the GST return (soon to be automatic), so there's a big saving already. If provisional tax is going to be similar, then there is even more savings to be made.

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2 months ago
Leanne Bigelow
I do think this is possible

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2 months ago
Ganesh Rao
I do not think it is possible to update accounts on a day to day basis. AS a small business I am a single person to handle everything with one part time staff. Staffing problems are unpredictable so is sudden workload, sickness and family issues. I would prefer to pay provisional tax quarterly. I have found this works pretty well. In fact I have generally had a refund at the year end since I pay in excess of the tax due.

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2 months ago
David Hutton
I am a self employed consultant mostly working on short international assignments paid in either US or Australian dollars. I have very irregular income and this can vary with exchange rate movements. I have detailed records of income and (modest) expenses but do not use an accounting package and have no need to do so. I could easily provide reasonably accurate tax adjustments during the year. Also, as I am heading towards retirement and deliberately working less, I anticipate my taxable income dropping. The current provisional tax system will require me to over-pay provisional tax when income drops.

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2 months ago
Caroline Faass
We use Xero for our accounting so in short, no, it will not cause any further wok to keep financial records up to date throughout the year and yes, we would support paying provisional tax throughout the year.

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2 months ago
debbie
I always have great intentions of doing the books every month, but the reality is that most months, I do them only when my GST is due, so whilst I like the idea of paying tax more accurately through the year, it would put extra pressure on me to keep the accounting side up to date. Maybe that would be better? Don't know!

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2 months ago
Janine Clemons
I am very comfortable with making tax adjustments throughout the year if it means more accurate tax information. I am self-employed with ONE person doing my books.

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2 months ago
Jane Fitzgerald
If the provisional tax were included at the GST time of adjustment this would be no problem. Paying on a more regular basis would make things easier. As our GST is done two monthly I don't see the work load being too much extra work

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2 months ago
Guy Lincoln
YES! I t would be brilliant! Do it ASAP!

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2 months ago
greg small
yes i would prefer to pay provisional tax in the same way i pay gst - as you go. thank-you

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2 months ago
HK
No one stopping you from volunteering tax payment as you see appropriate. Making it complulsary will require additional work I would rather to leave to my accountant to ensure my IRD obligations are met.

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2 months ago
Julene
I am very keen on this approach and feel sure I could make the correct tax adjustments through the year to result in an accurate payment of provisional tax. I would like to make this work as FY16 was a super-tough year for me in trying to stay on top of my tax obligations- I would be keen to avoid this occuring again.

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2 months ago
Felicity Fergusson
Would be very happy to pay tax as we earn, rather than provisional.. As I use Xero for my accounting packaging my Book work is always up to date. The daily bank links allow me to keep daily account of debtors and creditors. Also filing Gst 2 monthly requires up to date info. As we are a contracting business,,provisional tas is also inaccurate as our income can fluctuate from one year to next depending on size of contracts worked on. One year we will be paying large Prov. tax the next year can result in a refund.

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2 months ago
Grant Pedersen
This would be too onerous for me, as very small turnover. Prefer annual updating.

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2 months ago
Darren Ballagh
Regular bookwork should be the back bone of any business that wants to remain profitable and react when things start to change. I see the benefit more in small business, owner operators where tax obligations can cripple a business at the end of a financial year if not allowed for or not understood correctly

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2 months ago
Hayden
There is really no reason a business couldn't start using Xero (or its equivalent) to simplify their day to day management of accounts. Keeping your accounts current day to day is also really great for controlling costs and quickly seeing any errors you might have made (especially relevant if you forget to bill customers from time to time!) In short, i think keeping your accounts current throughout the year is probably less work than letting it build up over time.

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2 months ago
Michelle Hardy
Yes

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2 months ago
Sharron Binns
Yes to be able to pay provisional tax through the year would be a huge advantage for a small business

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2 months ago
warren black
easy-we can plan payments as per the last year and AIM will be far better Also AIM should be available to business of all size with good record wth IRD

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2 months ago
Dianne Hamilton
The closer tax payments can be aligned with accounting software the better - and the less work for all! I fully support this initiative and look forward to it being implemented.

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2 months ago
jneal
Very little extra work is created as we already complete GST returns on a two monthly basis, therefore turnover details are up to date.

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2 months ago
John Wyllie
I agree with the proposal and dont think it will cause undue extra workload. However i do disagree with the $5 million turnover. if this is supposed to help smaller businesses then it needs to be no higher than $1m

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2 months ago
Mark Berger
When we do our GST returns, we could add a figure for non GST income and non GST expenses (in my case residential rent) and then base our provisional tax on this two monthly figure instead of having to use accounting software. I do not see why small companies like myself should have to incur software costs to be able to pay tax regularly.

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2 months ago
Dave Tyler
We use Accounting Software that updates our Financial Position each month. The only downside I can see is that our end-of-year adjustments for depreciation etc may alter our overall tax position for the year.

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2 months ago
Kevin m Dailey
It's got to be a good plan,linked with GST if possible,.

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2 months ago
bruce
I will be able to keep accurate records and pay as I go. it will be better for me.

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2 months ago
Gail Riddell
Given that we have to keep the records up to date for GST Reports purposes, there is unlikely to be any hardship faced unless the time frame is too tight. The other issue I see is that there are always non GST adjustments (depreciation, interest calculation, non GST revenue or expenses as examples) and if these also have to be done on a regular basis, that will create a lot of extra work. Not only for people in the Public Accounting arena but also for the clients. However if the criteria is based on the exactly the same as is used for GST reporting purposes, there ought to be no dilemma whatsoever. In terms of getting clients to be more regular with provision of information and the regular "picking up and the putting down" of information to process the transactions, will create even bigger bottle necks than currently exist. ESPECIALLY as it will be the clients of the Accountancy firms who will bear the cost of the more frequent handling and and for what purpose or benefit will it give those said clients (many of whom are truly "kitchen table" bookkeepers and have no interest other than in keeping the taxman happy!)

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2 months ago
Vernon Kennerley
I, as an accountant, am not permitted to sign off electrical installations, or construct buildings, or design bridges, or issue a warrant of fitness for a vehicle, am amazed that you expect all small business operators to be good accountants and provide ACCURATE records.

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2 months ago
Andrew Allen
I think this is a great idea - We keep our accounts system up to date (why wouldn't you??) except the only component that will be missed by us and most accounting systems is depreciation during the year. This results in an overpayment of Tax, but this generally happens for us now anyway. When can we start. As a fairly fast growing org the current system does not work, so for us, a system based around actual accounts is some thing we are really looking forward to.

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2 months ago
Adrian K
This won't be difficult for me, as I already do my GST etc on a regular basis.

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2 months ago
Laffort New Zealand Ltd, Greg Wilkin
I think this is s good idea as I currently use an accounting program which I reconcile each month.

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2 months ago
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