Tax Discount for New Small Businesses
Starting a small business has become a little easier with a 6.7 percent tax discount that became available from 1 April. The tax discount applies to many self-employed people and members of partnerships in their first year of business.
The discount is designed to reduce some of the financial strain that small businesses face in the first three years of business. When businesses begin paying provisional tax, often in their second year of business, people can be hit hard by having to make payments of two years' income tax very close together - one for the previous year and one for the current year.
The discount aims to relieve this problem by encouraging people who are starting up in self-employment and partnerships to make early payments of tax in the year before they begin to pay provisional tax. Those who choose to do so will receive a 6.7 percent discount for each dollar of tax paid during the first year, to be calculated when their end-of-year tax bill is prepared. In this way they will have less tax to pay in year two and will save money as well.
To qualify for the discount, individuals must:
- be either self-employed or a partner in a partnership;
- derive gross income predominantly from a business (and not interest, dividends, royalties, rents or beneficiary income);
- not be required to pay provisional tax in the income year in question;
- make a voluntary payment of income tax before the end of the income year (31 March for a March balance date taxpayer);
- elect to receive the discount within the timeframe for filing a return of income for that income year;
- not have been liable to pay provisional tax in the previous four years; and
- not have received an early payment discount within the last four years - if they have a four-year break during which they do not receive income from self-employment or a partnership they become eligible again.
Once they have made a voluntary payment they must keep the lesser of the following in their income tax account until terminal tax date for the income year:
- the amount of voluntary payments made before the end of their income year; or
- the amount of terminal tax for the income year.
Those who are provisional taxpayers before they begin receiving self-employed or partnership income will not be entitled to the discount. The discount is not available to taxpayers who merely stop paying provisional tax, rather than stop deriving business income. For example, a business that has a tax loss would not qualify for the discount.
Contact for Enquiries
The Ministry of Agriculture and Forestry
Pastoral House
25 The Terrace
PO Box 2526, Wellington
Tel: 0800 00 83 33
Fax: +64 4 894 0720
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