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Application for Holdover of Provisional Tax

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Entitled allowances not included in the computation of provisional tax

1.

Q:

My wife has given birth to a child on 29 April 2019 and I can claim child allowance for 2019/20. Can I make a holdover application to pay less tax?

A:

Yes. You should make an application within the prescribed time limit stated in Answer 8, state the ground for holdover as "entitlement to child allowance in 2019/20 and supply details including the name and date of birth of your child.

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Reduction in income during the year for which provisional tax is charged

2.

Q:

I earned $650,000 during the year 2018/19. The Human Resource Director has just advised me that there would be a pay cut of $5,000 per month as from 1 June 2019. Can I make an application for holding over part of my 2019/20 provisional salaries tax?

A:

From what you have said, you may anticipate a drop of income to $600,000 for 2019/20.

The criterion for holding over is that your net chargeable income for the provisional tax year is less than 90% of that of the preceding year. Hence, it is necessary to ascertain your estimated net chargeable income for 2019/20 in order to consider whether you can apply for holding over of part of your provisional salaries tax. The net chargeable income is arrived at by deducting allowable deductions and allowances you are entitled to claim from your income.

The allowances granted to a single or married taxpayer is different, therefore, the situation will be different depending on whether you are single or married (assuming spouse having no income - you are entitled to claim Married Person´s Allowance). To demonstrate arithmetically:

Situation 1 - You are single 

  2018/19 2019/20
  $      $     
Income 650,000 600,000
Less: Basic Allowance 132,000 132,000
Net Chargeable Income 518,000 468,000
90% Thereof 466,200  

As the estimated net chargeable income for 2019/20 is more than 90% of that of 2018/19 (that is, $468,000 > $466,200), no part of your provisional salaries tax for 2018/19 can be heldover. 

Situation 2 - You are married and your spouse has no income (you are entitled to Married Person´s Allowance)       

  2018/19 2019/20
  $      $     
Income 650,000 600,000
Less: Married Person´s Allowance 264,000 264,000
Net Chargeable Income 386,000 336,000
90% Thereof 347,400  

As the estimated net chargeable income for 2019/20 is less than 90% of that of 2018/19 (that is, $336,000 < $347,400), you can apply for part of your provisional salaries tax for 2019/20 to be heldover. 

Situation 3 - Same as Situation 2 but with one child           

    2018/19   2019/20
    $        $     
Income   650,000   600,000
Less: Allowances        
        Married Person´s Allowance 264,000   264,000  
        Child Allowance 120,000 384,000 120,000 384,000
Net Chargeable Income   266,000   216,000
90% Thereof   239,400    

As the estimated net chargeable income for 2019/20 is less than 90% of that of 2018/19 (that is, $216,000 < $239,400), you can apply for part of your provisional salaries tax for 2019/20 to be heldover.

For any taxpayer falling within Situation 2 and 3 above, the Assessor will allow holdover of part of the provisional salaries tax, provided that a written application for holding over is lodged within the prescribed time limit, and the reason for the salary reduction and the estimated income for the period from 1 April 2019 to 31 March 2020 are provided.

Please refer to Answer 8 below for the time limit on lodgment of application.

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3.

Q:

Due to personal circumstances, I have to take no pay leave from 1 April to 31 May 2019. I shall earn less than 90% of what I have earned for the year to 31 March 2020. Can I pay less provisional salaries tax? Can I make a holdover request on my 2018/19 tax return or write to lodge a formal application now?

A:

If your net chargeable income (net total income minus total allowances) for the year to 31 March 2020 will be less than 90% of your net chargeable income for the year to 31 March 2019, you can apply to pay less provisional tax.

Application should be lodged 28 days before due date or within 14 days after the issue of the demand for provisional tax. Application for holdover of provisional tax must be made in writing, lodged with this Department within the prescribed time limit. Where an application is lodged on the ground of fallen income for 2019/20, you should furnish a computation to demonstrate a drop of the net chargeable income by more than 10%, when compared with that for 2018/19.

As most taxpayers would have their 1st instalment of tax due in January 2020, the most appropriate time to lodge holdover will be in November and December 2019. By that time, you should know the actual income figures for the 7 months to 31 October 2019, and you should be in a better position to estimate your income for the remaining 5 months to 31 March 2020.

In summary, you should not furnish details of "no pay leave" for April and May 2019 in your 2018/19 tax return. To lodge an application for holdover now would be pre-mature.  You should, after receipt of your demand note for provisional tax, lodge an application within the prescribed time limit listed in Answer 8 when you are in a better position to make a projection for the full year´s income

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4.

Q:

I received a lump sum contract gratuity on 30 September 2018.  Since no similar sum will be received in 2019/20, can I make a holdover request to exclude the lump sum from the computation of 2019/20 provisional salaries tax?

A:

If your estimated net chargeable income after deducting the contract gratuity for the year to 31 March 2020 will be less than 90% of your net chargeable income for the year to 31 March 2019, you can apply to pay less 2019/20 provisional salaries tax.

Your written application stating the ground for holdover should be lodged within the prescribed time limit listed in Answer 8.

 

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Increase in concessionary deductions not taken into account when computing the net chargeable income during the year for which provisional tax is charged

5.

Q:

I made donations of $200 in 2018/19 to charitable organizations. Up to September 2019, I have donated $60,000. Can I make an application for holding over part of my 2019/20 provisional salaries tax? 

A:

If your estimated net chargeable income (net total income minus allowances) for the year to 31 March 2020 will be less than 90% of your net chargeable income for the year to 31 March 2019, you can apply for holdover of provisional tax.

The following example illustrates how the estimated net chargeable income for 2019/20 is computed.

Example - You are single and your employment income for the year to 31 March 2019 is $650,000.

   

2018/19

2019/20

   

$

$

Income

650,000

650,000

Less: Approved Charitable Donations

200

60,000

  Basic Allowance

132,000

132,000

Net Chargeable Income

517,800

458,000

90% Thereof

466,020

 

 

As the estimated net chargeable income for 2019/20 is less than 90% of that of 2018/19 (that is, $458,000 < $466,020), you can apply for part of your provisional salaries tax for 2019/20 to be heldover. Your written application for holding over should be lodged within the prescribed time limit listed in Answer 8 by stating the ground for holdover. 

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6.

Q:

I have claimed home loan interest deduction for 15 years.  I did not claim any deduction in the year of assessment 2018/19.  My estimated home loan interest to be paid for the year of assessment 2019/20 is $40,000. Can I make an application for holding over part of my 2019/20 provisional salaries tax?

A:

The number of years of deduction of home loan interest is extended from 15 years of assessment to 20 years of assessment with effect from the year of assessment 2017/18.  If your estimated net chargeable income (net total income minus allowances) for the year to 31 March 2020 will be less than 90% of your net chargeable income for the year to 31 March 2019, you can apply for holding over of provisional tax.

The following examples illustrate how the estimated net chargeable income for 2019/20 is computed.

Example 1 - You are single and your employment income for the year to 31 March 2019 is $650,000.

   

2018/19

2019/20

   

$

$

Income

650,000

650,000

Less: Home Loan Interest Deduction

0

40,000

  Basic Allowance

132,000

132,000

Net Chargeable Income

518,000

478,000

90% Thereof

466,200

 

 

As the estimated net chargeable income for 2019/20 is more than 90% of that of 2018/19 (that is, $478,000 > $466,200 ), your provisional salaries tax for 2019/20 cannot be heldover.

 

Example 2 - You are married and your spouse has no income (you are entitled to Married Person´s Allowance). Your employment income for the year to 31 March 2019 is $650,000.

   

2018/19

2019/20

   

$

$

Income

650,000

650,000

Less: Home Loan Interest Deduction

0

40,000

  Married Person´s Allowance

264,000

264,000

Net Chargeable Income

386,000

346,000

90% Thereof

347,400

 

 

As the estimated net chargeable income for 2019/20 is less than 90% of that of 2018/19 (that is, $346,000 < $347,400), you can apply for holding over of part of your provisional salaries tax for 2019/20. Please refer to Answer 8 below for time limit on lodgment of application. 

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7.

Q:

I will likely pay qualifying premiums under the Voluntary Health Insurance Scheme policy in the year 2019/20. What should I do if I want to claim for holdover of provisional salaries tax in relation to the qualifying premiums expected to be paid?

A:

You can state the estimated qualifying premiums paid / to be paid for yourself and/or specified relative(s) and the related information in Part 8 of the 2018/19 Tax Return - Individuals. Assessor will compute the 2019/20 provisional salaries tax according to the information supplied.

You may also lodge a written application for holding over within the prescribed time limit stated in Answer 8 by stating the ground for holdover and supply relevant information upon receipt of your demand note for provisional salaries tax.

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Time limit for applying for Holdover

8.

Q:

I received a tax demand note on 5 August 2019. The 1st and 2nd instalments of my provisional salaries tax will fall due on 6 January 2020 and 7 April 2020 respectively. What is the deadline for making a holdover application?

A:

The law provides for a two-tier time limit. You must lodge an application not later than 28 days before the due date for payment of the provisional tax or 14 days after the date of issue of the notice for payment of provisional tax, whichever is the later. Hence, in respect of all or a part of the 1st instalment of tax, you should lodge an application for holdover on or before 9 December 2019. Any holdover application in connection with the 2nd instalment of tax should be lodged on or before 10 March 2020.

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9.

Q:

If I receive a demand note which was issued on 3 January 2020 with the 1st instalment of provisional tax payable on 17 February 2020, what is the deadline for making a holdover application?

A:

The 28th day prior to due date of payment is 20 January 2020 and the 14th day after the date of issue of the demand note is 17 January 2020. Hence, insofar as the holdover of the 1st instalment of tax due on 17 February 2020 is concerned, your application should be lodged on or before 20 January 2020.