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Inland Revenue

Tax Policy

PUBLISHED 31 March 2005

New tax discount from 1 April

From 1 April the new 6.7% tax discount becomes available to many self-employed people and members of partnership in their first year of business. An idea first canvassed in the 2003 discussion document 'Making tax easier for small businesses', the discount is intended to encourage people starting up in business to make early payments of tax in the year before they begin paying provisional tax. For more information see the government's media statement and the attachment 'Who qualifies for a tax discount?'.

Hon David Cunliffe
Minister of Communications
Minister for Information Technology
Associate Minister of Finance, Revenue and State-Owned Enterprises


Tax discounts for new small businesses

Starting a small business will become less taxing from April this year when a 6.7 per cent tax discount becomes available, Associate Revenue Minister David Cunliffe says.

The tax discount, available from April 1, will be open 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 those vital first three years of business. Mr Cunliffe says.

"When they 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. That can be a real strain for some small businesses."

Mr Cunliffe says the government has introduced the discount 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 per cent 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."

The discount is one of several measures designed to make tax easier for small businesses.

"Similar measures in the pipeline are aligning provisional tax and GST payments, allowing small businesses to base provisional tax payments on GST turnover and helping small businesses with PAYE," Mr Cunliffe said.


Who qualifies for the tax discount?

To qualify, 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: Julian Kersey, Advisor, 04 471 9116, 021 811 999, [email protected]