Use of money interest rates to reduce

Tax Alert - April 2016

On 4 April 2015, the Government announced that use-of-money interest rates on underpaid and overpaid tax will reduce from 8 May 2016. The interest rate charged by Inland Revenue on underpaid tax will decrease from 9.21% to 8.27%, and the rate for overpaid tax will decrease from 2.63% to 1.62%.

The rates are reviewed regularly to ensure they are aligned to market interest rates and were last updated in May 2015. 

The interest rates are set as prescribed by the Taxation (Use of Money Interest Rates Setting Process) Regulations 1997.  In this regard, the taxpayer’s paying rate must be set at the Reserve Bank of New Zealand floating first mortgage new customer housing rate series plus 250 basis points.The rate also takes into account that the Government is an involuntary and unsecured lender and unable to assess the credit-worthiness of the taxpayer. 

The Commissioner’s paying rate is set at the Reserve Bank of New Zealand 90 day bank bill rate series less 100 basis points. This rate is designed to discourage taxpayers from using Inland Revenue as a bank.

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