Provisional Tax Guide — Pay-As-You-Go Tax for NZ Businesses and Self-Employed
the provisional tax in New Zealand. The guide covers the provisional tax requirement (the residual income tax over $5,000), the payment options (the "standard", the "estimation", the "ratio"), the instalment dates, the interest and the penalties on the underpayments, and the use of money interest (UOMI).
Provisional Tax Requirements
The provisional tax is the pay-as-you-go system for the taxpayers with the residual income tax (the "RIT" — the tax after the credits) exceeding $5,000. The provisional tax is paid in the instalments during the year to which the tax relates. The standard instalment dates are: 28 August (the first instalment), 15 January (the second instalment), and 7 May (the third instalment). The "standard option" calculates the instalments based on the previous year's RIT plus 5%. The "estimation option" allows the taxpayer to estimate the current year's RIT.
Payment Options and UOMI
The provisional tax payment options include: (a) the standard option — the three equal instalments based on 105% of the previous year's RIT, (b) the estimation option — the taxpayer estimates the current year's RIT (may result in the lower payments if the income has decreased), and (c) the ratio option — the instalments based on the GST ratio (the "GST ratio" — the proportion of the annual GST turnover). The Use of Money Interest (UOMI) is charged on the underpaid provisional tax at the prescribed rate (currently 10.82% for the underpayments). The UOMI is also paid on the overpaid provisional tax at the rate of 4.39% for the overpayments.