no impact Revenue: Recommendation Officials recommend option 2 as tax payments based on actual rather than forecast income, excluding shareholder salaries, will work for a large number of businesses where income accumulates over the year. This will reduce stress around year end payments and UOMI for taxpayers who use this method. Paying tax as agent for shareholder-employees Provisional tax gives rise to particular concerns for small businesses and their owners. The current rules apply separate obligations to a company and each of its shareholders. At its core what is happening is that a flow of income is being derived in a single economic entity and being partitioned out at the end of the year between the company and its shareholders, normally by way of shareholder salary. Each shareholder will typically be liable for provisional tax on that income. The current approach does not align with the principle that tax should be collected by the person who is able to do so most efficiently, and compliance costs minimised. Officials have considered a number of options to address these concerns, which are summarised below and outlined in more detail in appendix A-4. Options Analysis against the objectives 1. Retain the status quo Fairness and equity:  Compliance and administration:  Sustainability:  no impact Revenue: 2. Allow companies to pay tax as Fairness and equity:  agent for shareholder-employees Compliance and administration:  Sustainability:  no impact Revenue: 3. Require businesses to pay tax as Fairness and equity:  agent for related parties Compliance and administration:  Sustainability:  no impact Revenue: 4. Exclude those associated with Fairness and equity:  small businesses from paying Compliance and administration:  provisional tax entirely and pay at Sustainability:  terminal tax date unquantified revenue cost due to deferral Revenue: Recommendation Option 2 is recommended by officials as this enables businesses and associated individuals to evaluate whether the benefits from removing associated parties from the requirement to pay provisional tax outweighs any additional costs or complexity. This option is also supported by the stakeholders consulted.
Revenue: no impact Recommendation Officials recommend option 2 as tax payments based on actual rather than forecast income, excluding shareholder salaries, will work for a large number of businesses where income accumulates over the year. This will reduce stress around year end payments and UOMI for taxpayers who use this method. Paying tax as agent for shareholder-employees Provisional tax gives rise to particular concerns for small businesses and their owners. The current rules apply separate obligations to a company and each of its shareholders. At its core what is happening is that a flow of income is being derived in a single economic entity and being partitioned out at the end of the year between the company and its shareholders, normally by way of shareholder salary. Each shareholder will typically be liable for provisional tax on that income. The current approach does not align with the principle that tax should be collected by the person who is able to do so most efficiently, and compliance costs minimised. Officials have considered a number of options to address these concerns, which are summarised below and outlined in more detail in appendix A-4. Options Analysis against the objectives 1. Retain the status quo Fairness and equity:  Compliance and administration:  Sustainability:  Revenue: no impact 2. Allow companies to pay tax as agent for shareholder-employees Fairness and equity:  Compliance and administration:  Sustainability:  Revenue: no impact 3. Require businesses to pay tax as agent for related parties Fairness and equity:  Compliance and administration:  Sustainability:  Revenue: no impact 4. Exclude those associated with small businesses from paying provisional tax entirely and pay at terminal tax date Fairness and equity:  Compliance and administration:  Sustainability:  Revenue: unquantified revenue cost due to deferral Recommendation Option 2 is recommended by officials as this enables businesses and associated individuals to evaluate whether the benefits from removing associated parties from the requirement to pay provisional tax outweighs any additional costs or complexity. This option is also supported by the stakeholders consulted.
2016-ris-bteirm-bill-4.docx