Guide: Provisional tax

This guide outlines what every SME needs to know when talking about provisional tax with their accountant. If your business had to pay $2500 or more in income tax in the previous tax year, you are likely to be a provisional taxpayer. Due to the recent government response to COVID-19, we have updated the guide to reflect the new legislative changes. Read more on the COVID-19 tax proposal.

Free downloadable Tax Management guide to paying provisional tax.

In this guide

What you need to know about provisional tax

We’ve translated all there is to know about provisional tax into the core pieces that will allow you to have an informed discussion with your accountant.

Strategies to fit your business needs

You have options on how you calculate and pay your provisional tax. We’ve presented all of them so you can match to the needs of your business.

Current version available for download: April 2020
Previously published version(s): April 2019, August 2019

About provisional tax

A brief explanation of what provisional tax is and who pays it. The following assumes it is not your first year in business and aligns with the provisional tax rules for the 2018 tax year onwards.

If this is your first year in business, refer to that chapter later in the guide as different rules apply.

Provisional tax breaks up the income tax you pay Inland Revenue (IR) by letting you pay it in instalments during the year instead of one big sum at the end of the tax year.

A taxpayer* may have to pay provisional tax when they earn income where tax is not deducted by the person or organisation from which it was received.

*Whether an individual, company or trust,

You may have to pay provisional tax if you:

  • Run a business
  • Are self-employed
  • Engage in contract or freelance work
  • Earn rental income
  • Receive income from a partnership
  • Earn money from overseas.

You would become a provisional taxpayer if the income tax due for the previous year (known as your residual income tax) was more than $2500. Your residual income tax is the amount of income tax you must pay, less any PAYE and other tax credits (except Working for Families) to which you are entitled.

Your tax year is based on your tax balance date. For most, it will be the period of 1 April to 31 March.