This special report provides early information on changes to the use of money interest rates on underpayments of tax in line with recent changes in market interest rates ahead of an upcoming edition of the Tax Information Bulletin.
Table of Contents
Overview
Sections 120E(1) and 120H of the Tax Administration Act 1994
The use of money interest (UOMI) rate on underpayments of taxes and duties has changed in line with market interest rates.
Background
The UOMI underpayment rate is charged to taxpayers on underpayments of tax to Inland Revenue, while the UOMI overpayment rate is paid to taxpayers on money paid to Inland Revenue exceeding their tax liability.
Section 120H(1)(b) of the Tax Administration Act 1994 permits the making of regulations by Order in Council to set the UOMI underpayment and overpayment rates. Once a rate is set, it remains at that rate until changed by a subsequent Order in Council.
The UOMI underpayment rate is based on the ‘floating first mortgage new customer housing rate’ series published by the Reserve Bank (RBNZ) each month, while the UOMI overpayment rate is based on RBNZ’s ’90-day bank bill rate’ series each month. The UOMI rates are both adjusted if either the RBNZ 90-day bank bill rate or the floating first mortgage new customer housing rate moves by 1% or more, or if one of these indexes moves by 0.2% or more and the UOMI rates have not been adjusted in the last 12 months.
The UOMI rates are reviewed regularly to ensure they are in line with market interest rates. The new UOMI underpayment rate and existing UOMI overpayment rate are consistent with the floating first mortgage new customer housing rate and the 90-day bank bill rate.
Key features
The new underpayment rate is 7.28% (previously 7.00%). The overpayment rate remains at 0%.
Effective date
The new UOMI underpayment rate applies on and after 10 May 2022.
Further information
The regulations updating the underpayment rate can be found at
https://legislation.govt.nz/regulation/public/2022/0097/latest/whole.html.
About this document
Special reports are published shortly after new legislation is enacted or Orders in Council are made to help affected taxpayers and their advisors understand the consequences of the changes. These are published in advance of an article in the Tax Information Bulletin.