Question

Part A: Provisional Tax and Interest

Yixuan Wu runs a business and her residual income tax (RIT) for the 2019-20 income year (31 March balance date) was $30,000. She filed for her 2019-20 income year return on 1 July 2020. Business has not been great since April this year due to the lock downs and Yixuan is expecting to make much lower profit for this income year and hence expects to pay much less tax for the 2020-21 income year. She seeks your advice on her provisional tax payments for the 2020-21 income tax year ending 31 March 2021. She has previously used the standard uplift method to calculate her provisional tax payments.

(c) Yixuan is concerned that she may end up paying her tax late or underpaying her tax and is not sure of the consequences if this happens. Explain to Yixuan what happens if a taxpayer is late paying their tax or underpays their tax?

Answer 1

Individuals with income exceeding more than basic exemption limit are required to file Income tax return and also had to pay tax before the due date.

As per the case due to lockdown Yixuan is thinking to pay tax late or underpay their tax which can have different consequences. If the Tax payer pays tax late following are some of the consequences such as:

• Penalty for late Filing of Return
• Reduced Time for Revising your Return
• Delay in Receiving Refunds
• Payment of Interest
• Carry Forward of Losses is Not Allowed

If the Tax payer underpays tax following are some of the consequences such as:

Penalty on the outstanding amount but penalty can be waived off under following scenarios

• A taxpayer’s total tax liability is less than $1,000.
• The taxpayer did not owe any taxes for the previous year.
• The taxpayer paid at least 90% of the taxes owed.
• The taxpayer missed a required payment because of a casualty event, disaster, or other unusual circumstance.
• The taxpayer retired after reaching age 62.
• The taxpayer became disabled during the tax year or during the preceding tax year for which estimated payments were unfulfilled.