Provisional and Terminal Tax – The Basics (updated 2020)

Provisional and Terminal Tax

Meeting your income tax obligations during the tax year

•         The number of instalments you are required to make depends on the way you choose to calculate your provisional tax instalments. If you’re GST-registered, how often you file GST returns also determines how many provisional tax instalments you’re required to make.
•         The amount of provisional tax you need to pay is based on your expected profit for the year or your GST taxable supplies (sales) and depends on the way you choose to work out your provisional tax instalments.
•         At the end of the year you pay or are refunded the difference between the amount of provisional tax you paid and the amount you should have paid, based on your actual profit for the year.

You may be liable for provisional tax

If your residual income tax (tax to pay) on your last income tax return is more than $2,500, you may have to pay provisional tax for the following year.

What is Residual Income Tax?

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.

Calculating your provisional tax

You can use one of these options to work out your provisional tax:

•         standard
•         estimation
•         ratio option.

The ratio option can only be used if you’re registered for GST.

Due dates for your provisional tax

The number of times you need to pay provisional tax each year depends on the option you use to calculate your provisional tax, and how many times you pay GST (if registered).

If you have a 31 March balance date (ie your tax year ends on 31 March) and you use the standard or estimation options to calculate your provisional tax payments, your provisional tax due dates are:

If you have a 31 March balance date and you use the ratio option to calculate your provisional tax payments, these are due on:

If you’re registered for GST you pay your provisional tax and GST at the same time on a combined GST and provisional tax return.

Make sure we receive your returns and payments on or before the due date. If you file and/or pay late or don’t pay the full amount, late payment penalties and interest may apply.