Provisional Tax Guide

An introductory guide to paying provisional tax

Provisional tax is a method for spreading your tax payments throughout the year. If you are an individual, company or a trust that had to pay more than $2,500 income tax from your last tax year, you are likely to be a provisional taxpayer. This guide outlines what every SME needs to know when talking about provisional tax with their accountant. To get your copy, just complete the form below and we’ll send it via email.

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.

About this Guide…

Difficult to get right, expensive to get wrong.
The cause of many headaches for New Zealand business owners.

Yes, we are talking about provisional tax.

If you are new to business or are about to start paying provisional tax for the first time, the whole process can be complicated, confusing and scary.

Why do I have to pay it? When do I have to pay it? How much do I have to pay? What happens if I don’t or can’t pay? These are just a few of the questions that will run through your mind like Usain Bolt, not to mention cause a few restless nights.

That’s why Tax Management NZ (TMNZ), as a payment intermediary and the experts on provisional tax, decided to put together this introductory guide.

Now, this is not intended to be a one-stop-shop, and we encourage you to seek the advice of an accountant if you have any further questions after digesting the content of this publication.

But over the next few pages our aim is to arm you with the information you need to know so you are aware of your obligations and do not fall foul of IRD.

Improving your basic knowledge of provisional tax means you have one less thing to worry about. And one less thing to worry about means you can get on with doing what you do best: running and growing your business.

Happy reading.
Tax Management NZ

Here is what you’ll learn

Free downloadable guide to paying provisional tax guide from TMNZ

What you need to know

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

Preview: About this guide

In this section, we’ll briefly explain what provisional tax is and who pays it. The following assumes it IS NOT your first year in business and takes into consideration the provisional tax rules for the 2018 tax year onwards. If this is your first year in business, refer to that chapter further in this guide as different rules apply.

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

Any taxpayer – whether they be an individual, company or trust – who earns income where tax is not deducted by the person or organisation from which it was received may have to pay provisional tax.

You may have to pay provisional tax if you:

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

You become a provisional taxpayer if the income tax due for the previous year (this is 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.

We believe in keeping things simple so this guide is written in plain, straightforward language – very little tax jargon, promise!