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Income Tax Act 2007

General collection rules - Provisional tax - Table R1: Summary of instalment dates and calculation methods for provisional tax

RC 38: Crediting income tax with early-payment discount

You could also call this:

“Getting a discount for paying your small business income tax early”

This law explains how you can get a discount on your income tax if you’re a small business owner and you pay early. You can get this discount if you do these things:

You pay your income tax on or before your balance date for the income year. Your balance date is when your financial year ends.

After you pay, you have enough credit in your tax account to cover what you paid or what your final tax bill would be.

You file your tax return for that year.

You ask for the early payment discount by the last day you’re allowed to file your tax return.

If you do all these things, the tax office will give you a discount. They work out how much by using a special discount rate. This rate is usually 2% more than the rate the tax office pays on overpaid tax. But sometimes, the government might set a different rate.

The discount you get is the smaller of two amounts: either the total tax you paid early, or 105% of your leftover income tax for the year.

If the government decides to change the discount rate, they have to follow special rules to make it official.

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View the original legislation for this page at https://legislation.govt.nz/act/public/1986/0120/latest/link.aspx?id=DLM1519922.

Topics:
Money and consumer rights > Taxes
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“When small businesses can get discounts for paying tax early”

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“Early-payment discount for small businesses counts as income tax payment”

Part R General collection rules
Provisional tax: Table R1: Summary of instalment dates and calculation methods for provisional tax

RC 38Crediting income tax with early-payment discount

  1. This section applies when a small-business person—

  2. pays income tax on or before their balance date for the income year; and
    1. during the period from the balance date for the income year to their terminal tax date for the income year, has a credit in their tax account with the Commissioner that is greater than or equal to the lesser of—
      1. the total amount paid under paragraph (a):
        1. the amount that would be their terminal tax for the income year in the absence of this section; and
        2. files a return of income for the tax year corresponding to the income year; and
          1. applies for an early-payment discount on or before the last date for filing a return of income under section 37(5) of the Tax Administration Act 1994.

            1. The Commissioner must credit the tax account of the small-business person with an early-payment discount calculated under subsection (3).

            2. The amount of the early-payment discount is found by multiplying the discount rate under subsection (4) by the lesser of—

            3. the total amount paid under subsection (1)(a):
              1. 105% of the small-business person’s residual income tax for the income year.

                1. The discount rate is—

                2. the rate that is 2% greater than the Commissioner’s paying rate set by an Order in Council under section 120H of the Tax Administration Act 1994 that applied at the end of the preceding tax year if no rate is set under paragraph (b):
                  1. the rate set by the Governor-General by Order in Council.

                    1. An Order in Council under subsection (4)(b) is secondary legislation (see Part 3 of the Legislation Act 2019 for publication requirements).

                    Compare
                    Notes
                    • Section RC 38(4)(a): replaced, on , by section 113(2) (and see section 113(4) for application) of the Taxation (Annual Rates for 2023–24, Multinational Tax, and Remedial Matters) Act 2024 (2024 No 11).
                    • Section RC 38(5) heading: inserted, on , by section 3 of the Secondary Legislation Act 2021 (2021 No 7).
                    • Section RC 38(5): inserted, on , by section 3 of the Secondary Legislation Act 2021 (2021 No 7).
                    • Section RC 38 list of defined terms apply: inserted, on , by section 74 of the Taxation (Transformation: First Phase Simplification and Other Measures) Act 2016 (2016 No 27).