All,
I have a question to which i have received a reply from the IRD help line but it does not make sense to me, so i am wondering if i am missing something.
We are in a situation where we have to pay provisional tax. Our income moves from year to year so the usual formula of previous year's tax plus 5% does not apply to us. We need to make an estimate of our income and pay accordingly. We did make the estimate, but we did not expect that the interest rates would drop as much as they did and therefore our income for the year will be a higher than we estimated. We made one payment of provisional tax in August based on the lower estimate. Now that we know our rates our lower and income is higher, we are re-estimating our anticipated income and adjusting our provisional tax payment. But IRD is saying that when we made the payment in August we should anticipated what the interest rate movement will be, and adjusted our estimate accordingly and therefore for the underpayment in August we need to make a top up payment and interest and penalty will apply from August till the date when we top up the "underpayment".
There is on gentlemen on this forum who uses a crystal ball regularly (or at least alludes that he has gone one that he can use), but other than him i am not sure how can we be expected to anticipate interest rate movements, and why we get penalised if we do not anticipate them correctly. It just does not make sense to me that i have to pay a penalty and interest in this situation.
What is huge amount of oil are found somewhere next to Wellington in the next month and as a result there is a huge influx of people and i manage to rent all my properties at double the rent i get at the moment? This will increase my income significantly, and by IRD's logic i will have to pay penalty and interest on the "underpayments" of provisional tax in August and January. Surely it can not be right? Does anyone know how this actually work?
Thanks.
I have a question to which i have received a reply from the IRD help line but it does not make sense to me, so i am wondering if i am missing something.
We are in a situation where we have to pay provisional tax. Our income moves from year to year so the usual formula of previous year's tax plus 5% does not apply to us. We need to make an estimate of our income and pay accordingly. We did make the estimate, but we did not expect that the interest rates would drop as much as they did and therefore our income for the year will be a higher than we estimated. We made one payment of provisional tax in August based on the lower estimate. Now that we know our rates our lower and income is higher, we are re-estimating our anticipated income and adjusting our provisional tax payment. But IRD is saying that when we made the payment in August we should anticipated what the interest rate movement will be, and adjusted our estimate accordingly and therefore for the underpayment in August we need to make a top up payment and interest and penalty will apply from August till the date when we top up the "underpayment".
There is on gentlemen on this forum who uses a crystal ball regularly (or at least alludes that he has gone one that he can use), but other than him i am not sure how can we be expected to anticipate interest rate movements, and why we get penalised if we do not anticipate them correctly. It just does not make sense to me that i have to pay a penalty and interest in this situation.
What is huge amount of oil are found somewhere next to Wellington in the next month and as a result there is a huge influx of people and i manage to rent all my properties at double the rent i get at the moment? This will increase my income significantly, and by IRD's logic i will have to pay penalty and interest on the "underpayments" of provisional tax in August and January. Surely it can not be right? Does anyone know how this actually work?
Thanks.
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