Taxman makes an offer you can refuse

Inland Revenue has been running a scheme for the past year for people who have just started in business and who have nothing better to do with their money than lend it to the Government for a very modest return.

Just how many people fall into this category, if any, the tax department was unable to say late yesterday.

The scheme reflects the fact that people who have started in business, whether self-employed or in a partnership, do not have to start paying provisional tax until their end-of-year tax has exceeded $2500.

That can result in a year in which they have to pay both final tax for the previous year, and provisional tax for the current year.

"So why not get a head start by starting your tax payments before you have to?" suggests the helpful taxman. "We will even pay interest."

But the IRD is not offering enough interest to make financial sense if the business owner is paying commercial rates of interest on working capital.

"Voluntary payments were introduced in the 2005-06 tax year and this is the first year people will be able to claim the discount when they file their returns. The discount is 6.7 per cent of the total voluntary payments made during the year or 105 per cent of the end-of-year tax amount, whichever is smaller," the IRD said yesterday.

But the discounts are unlikely to be tempting.

"It is pretty hard to get excited about it," said Institute of Chartered Accountants tax director Craig Macalister. "It only applies quite narrowly to people moving from salary or wage income into a business. People will have better things to do with their money and typical New Zealanders pretty much leave everything to the last minute anyway."