IRD - 20 January 2012 (updated 4 September 2013)
Provisional tax is not a separate tax but a way of paying your income tax as the income is received through the
You pay instalments of income tax during the year, based on what you expect your tax bill to be. The amount of
provisional tax you pay is then deducted from your tax bill at the end of the year.
If you had income tax of more than $2,500 to pay at the end of any tax year you may have to pay provisional tax for
the following year.
Residual income tax (RIT) is the amount of tax you have to pay, less any tax credits you may be entitled to
(excluding working for families tax credits or other tax payments made during the year) and any PAYE deducted.
You can use one of three options for working out your provisional tax: standard, estimation, and ratio.
This is the default option the IRD will use unless you choose the estimation or ratio options.
Under this option, your provisional tax payable is your previous year's residual income tax plus 5%, although
this can vary when there are changes in income tax rates. Further information is available here.
The other way to work out your provisional tax is to estimate what your residual income tax will be. When
working out the tax, keep the following points in mind:
- To get the right tax rate: Add up all your estimated income, work out the tax on the total, then subtract
any tax credits (such as PAYE or RWT)
- Using the estimation option, if your estimated residual income tax is lower than your actual residual
income tax for that year, you may be liable for interest on the underpaid amount
- You can estimate your provisional tax as many times as necessary up until your last instalment date. Each
estimate must be fair and reasonable
To use the ratio option, you must be GST registered.
Under the ratio option, you pay provisional tax based on your GST taxable supplies for each two-month period.
You'll make six provisional tax payments of differing amounts depending on your taxable supplies during each
The IRD calculate your ratio percentage and you multiply this by your previous two months GST taxable supplies
to get the amount of provisional tax you need to pay.
Under the ratio option, you'll pay provisional tax six times during the year - the amount you pay varies
depending on your GST taxable supplies.
You must apply to use the ratio option before the start of the tax year you want to use it in. You can do this in
writing or by calling the IRD.
For more information and an example using the ratio option, there is a brochure available here: A new way to calculate your provisional tax (IR851).
The due date and amount of instalments you need to make for payment of your provisional tax each year depends on
your balance date, which of the above options you use and how often you pay GST (if registered).
If you have a 31 March balance date and use the standard or estimation option or are also GST Registered on a 1
or 2 monthly basis, the provisional tax payments are due on:
- First instalment - 28 August
- Second instalment - 15 January
- Third instalment - 7 May
In some circumstances you may be charged interest if the provisional tax you paid is less than your residual
income tax. If the provisional tax you pay is more than your residual income tax, the IRD may pay you interest on
For futher information on provisional tax, due dates and changes made by IRD refer to the IRD Website.
All information is correct at the date of article
publication. Please note we provide the information as a service only. Accordingly, the contents are
not intended as a substitute for specific professional advice and should not be relied upon for that
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