RSM New Zealand

What is provisional tax?

Provisional tax is not a separate tax.  It is income tax paid in advance during the year because of the way you, your company or your trust earns its income.  Provisional tax helps you to “spread the load” to avoid a large end of year tax bill. 

When would you pay provisional tax?

You must pay provisional tax if, at the end of the previous year, there is tax to pay of more than $2,500.  We call this amount your “residual income tax” (RIT).  Specifically, RIT is the amount of tax to pay on your taxable income, less any PAYE deducted and any other tax credits you may be entitled to (except Working for Families Tax Credits).

Your RIT could exceed $2,500 if you earn income without enough tax deducted to cover your income tax for the year. 

Examples are:

  • self-employed or rental income
  • schedular payments or salaries and wages with a low PAYE rate
  • income from a partnership or look-through company
  • income from an estate or trust
  • overseas income
  • business income
  • other income not taxed at source or taxed at a low tax rate

In most cases, you pay provisional tax in three instalments during the year, based on what you expect your tax bill to be. When you file your income tax return and calculate your tax for the year, you deduct the provisional tax you paid earlier.

Any taxpayer who pays income tax may have to pay provisional tax.  This includes individuals, companies and trusts.

When are provisional tax payments due?

Instalment dates are set based on the balance date of the individual, company or trust and are split into three instalments over the financial year.

Unless an alternative is specifically requested, New Zealand tax payers default to a March balance date.

 

Instalment payment dates

 

First

Second

Third

January

28 June

28 October

28 February

February

28 July

28 November

28 March

March

28 August

15 January

7 May

April

28 September

28 January

28 May

May

28 October

28 February

28 June

June

28 November

28 March

28 July

July

15 January

7 May

28 August

August

28 January

28 May

28 September

September

28 February

28 June

28 October

October

28 March

28 July

28 November

November

7 May

28 August

15 January

December

28 May

28 September

28 January

If you are not sure whether you are required to pay provisional tax, check with your accountant – we are here and ready to help! 

 

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Authors

Nicola Turner
Partner - Auckland