The Tax Man Loves Farmers
The Tax Man Loves Farmers
24 June 2014
Dairy farmers need to take action now to avoid high Inland Revenue Department interest being charged on tax owed for the season, says Justin Geddes, Agribusiness Principal at Crowe Horwath’s Dunedin office.
“With the dairy pay out high and stock prices better than last year, there is a good chance farmers will owe tax this season,” said Mr Geddes.
Use of money interest is charged at 8.4 per cent from the first provisional tax date until the time the year-end tax is paid, meaning that even though the due date for final payment of the tax will be April next year, IRD will be charging interest on the amount owed in the meantime. Use of money interest is like an overdraft interest rate, which the IRD applies where the year-end tax is higher than the provisional tax that has been paid.
That means dairy farmers with a May end of year could be charged interest for more than 17 months from 28 October 2013 until 7 April 2015, and sheep/beef farmers, which usually have a June end of year, interest for 16 months.
To minimise interest payments to the IRD, says Mr Geddes, farmers need to keep a good track of how they are performing. If in June or July it looks like the profit will be up on last year, he recommends that farmers get their accountant or agribusiness advisor to do a quick estimate of tax.
“If you’ve got cash in the bank earning about 3 per cent in interest, it makes far more sense to pay your tax early to save yourself being charged 8.4 per cent by the IRD,” he said.
“And even if your cash is a bit tight, talk to your agribusiness advisor, because there are companies you can use to finance your tax using an approved tax pooling scheme. Their interest rates are about 6.3 per cent, but still better than the IRD.”
The key message, said Mr Geddes, was that just because the tax was not due immediately, interest was probably still accruing on it at 8.40 per cent.
“Talk to your advisor, and if you’ve got the cash, make an early payment of your tax and save yourself some money,” he said.
This press release provides general information only, current at the time of dissemination. Any advice in it has been prepared without taking into account your personal circumstances. You should seek professional advice before acting on any material.
Crowe Horwath (NZ) Limited is a member of Crowe Horwath International, a Swiss verein. Each member firm of Crowe Horwath is a separate and independent legal entity. Crowe Horwath (NZ) Limited and its affiliates are not responsible or liable for any acts or omissions of Crowe Horwath or any other member of Crowe Horwath and specifically disclaim any and all responsibility or liability for acts or omissions of Crowe Horwath or any other Crowe Horwath member.