Guide sneak peak
About this Guide…
Need some help regarding provisional tax and the use of the standard uplift method? You’re not the only one.
Tax Management NZ fielded several queries from accountants and business owners alike after IRD changed the rules to coincide with the start of the 2018 tax year. It was a big reason we produced this guide.
The information on these pages has since been updated to reflect the provisional tax amendments contained in the Taxation (Kiwisaver, Student Loans, and Remedial Matters) Bill and COVID-19 Response (Taxation and Social Assistance Urgent Measures) Bill.
Therefore, it is based on our interpretation of the legislation as at 1 April 2020 and how we believe it relates to the payment of provisional tax for taxpayers using the standard uplift method. Where appropriate, we have cited the relevant sections of the Income Tax Act 2007 and Tax Administration Act 1994.
We would like to thank IRD’s policy team for its support and responsiveness in providing clarification for specific scenarios we raised with them.
While this guide may not answer all your questions, or deal with your specific situation, we at least hope it provides some clarity and basic understanding around these rules. Enjoy the read.
Tax Management NZ
NB. The examples provided in this guide are based on taxpayers with a 31 March balance date using the standard uplift method. They are liable to pay three instalments of provisional tax.
Disclaimer: The content in this guide is subject to change as IRD regularly reviews the rules to see if they are operating as intended, and publishes determinations clarifying its position on how it will apply the legislation in certain situations. As such, it cannot be relied upon as tax advice. It may be prudent to confirm the position you are taking by speaking directly to IRD.
Calculating the Instalment Amount Due Under the Standard Uplift Method
The amount of provisional tax payable at an instalment date for those using the standard uplift method is calculated using the formula set out in section RC10 (2) Income Tax Act 2007.
(Residual income tax x instalment number ÷ total instalments) – provisional tax
A taxpayer whose income tax liability for the year is going to be $60,000 or more (or less than what was calculated under standard uplift) will use the formula found in section RC10 (5) Income Tax Act 2007 to determine the amount payable at the date of their final instalment.
Expected RIT − tax
Please note an instalment amount calculated in this section is truncated to whole dollars (e.g. $1000.33 becomes $1000).
Legislative references: Sections RC5 (4B), RC9 (13) and RC10 (7) Income Tax Act 2007.