Use of money interest

On 9 May 2023, the interest rate for underpayments of tax increased to 10.39% (previously 9.21%), while the interest rate for overpayments of tax increased to 3.53% (previously 2.31%). On 29 August 2023, these rates will increase again to 10.91% and 4.67% respectively.

These rates are the highest since 2009. Given the increase in rates, ensuring taxes are paid in full and on time has become more imperative. In terms of provisional tax, these rates also highlight the value in using a tax pooling intermediary such as TMNZ, as lower rates of “use of money interest” are available for underpayments and higher rates of “use of money interest” are available for overpayments.

FBT interest rates

From the quarter beginning 1 October 2023, the FBT prescribed rate for calculating fringe benefit tax on employer provided loans will be increasing to 8.41% from 7.89%. This rate can also be used when calculating the deemed dividend arising on below-market-rate loans provided by companies to their shareholders or associates.

Kilometre rates

Inland Revenue has also published the kilometre rates for business use of motor vehicles for the 2023 income year (year ended 31 March 2023 for standard balance dates). They are as follows:

Tier One rates can be used for the first 14,000 kilometres of travel (this threshold includes both business and private use), while Tier Two rates are used for travel beyond the first 14,000 kilometres.

The Tier One rates have increased from 83 cents in the 2022 income year to reflect an overall increase in vehicle running costs. This increase is largely attributable to the rising price of fuel.

Actual costs can also be used as an alternate when claiming income tax deductions or reimbursing employees. Reputable rates such as AA rates can be used as an alternate when reimbursing employees.

Square metre rate

The updated square metre rate for the 2023 income year is $51.05 per square metre. This provides a simple alternative calculation of costs for the dual use of buildings (e.g., home office), instead of apportioning each individual item of expenditure. The rate does not include mortgage interest, rates and rent, which must continue to be apportioned.

Short-stay accommodation 

The short-stay accommodation rates for the 2023 income year have been amended as follows: 

This rate can be used by providers of short-stay accommodation in their home to reduce compliance costs for taxpayers who meet the criteria. Note taxpayers may choose not to apply this rate and claim actual expenses if desired.

Small value loan margin

Inland Revenue provides a simplified regime to determine interest rates on cross-border loans between associated entities, which is a useful tool to determine arm’s length interest rates to comply with transfer pricing rules.

A component of this is the small value loan margin, which has decreased to 175 basis points (1.75%) from 250 basis points (2.50%) over the relevant base indicator. This is broadly indicative of an arm's length rate, in the absence of a readily available market rate for a debt instrument with similar terms and risk characteristics.

The official cash rate (OCR) is currently 5.5%. This means if the OCR is used as the relevant base indicator, then the new small value loan margin rate is 7.25%.

Household boarding service providers

Inland Revenue’s household boarding service providers rate for the 2023 income year is $222.00 (up from $207.00 2022 rate), as the weekly standard cost per boarder.

The rate covers standard expenses consisting of direct costs (e.g., food and household bills), cost of accommodation and use of motor vehicle in providing transport to the boarders. This rate provides a simple alternative calculation of deductions where taxpayers provide private boarding services in their home to no more than four boarders at any time during the income year.

Note, this can only be used for boarders. If you have flatmates in your home, then income is fully assessable and deductions can be claimed on a share of costs incurred.

Childcare household service rate

Inland Revenue has published the updated childcare household service rates for the 2023 income year. The new home-based childcare rates are as follows:

This rate is applicable to non-GST registered taxpayers who provide childcare services in their domestic accommodation. For providers who are part of a licensed service provider network, this rate cannot be applied.

If you require assistance in relation to any of these matters, Baker Tilly Staples Rodway specialists would be more than happy to assist you with queries or tax advice in relation to matters above.