Provisional tax—yeah, it’s a thing. And if you’re in business or earning beyond a certain threshold, you’re probably on the hook for it.
It’s basically the IRD’s way of making sure you’re not hit with a giant tax bill at the end of the year. Instead, you pay in chunks throughout the year. Sounds fair? Maybe. Annoying? Definitely.
Methods to Calculate Provisional Tax
There’s more than one way to calculate your provisional tax, and picking the right method can save you headaches (and penalties). Here’s a quick breakdown:
| Method | How It Works | Best For |
|---|---|---|
| Standard Uplift | Based on 105% of last year’s residual income tax (RIT) or 110% of two years ago if last year’s return isn’t filed. | Most taxpayers—simple and predictable. |
| Estimation | You estimate your expected RIT for the year. If you get it wrong, penalties may apply. | Businesses with fluctuating income. |
| GST Ratio | Tax is calculated as a percentage of your GST taxable supplies, spreading payments across the year. | Businesses with seasonal income needing better cash flow management. |
| Accounting Income (AIM) | Uses accounting software to pay tax based on real-time profits—no surprises at year-end. | Small businesses (turnover under $5M) wanting flexibility. |
Each method has its pros and cons. Pick wisely—choosing the wrong one could mean unnecessary stress (or worse, unexpected tax bills). Talk to your accountant to avoid these !
Provisional Tax Dates
Provisional tax isn’t a one-size-fits-all deal—how often you pay depends on your tax method. Here’s the breakdown:
Two Instalments
For taxpayers using the standard or estimation method who file GST returns every six months.
- 28 October – First instalment
- 7 May – Second instalment
Three Instalments (Default Option)
For taxpayers using the standard or estimation method with regular GST filing.
- 28 August – First instalment
- 15 January – Second instalment
- 7 May – Third instalment
Six Instalments
For taxpayers using the GST ratio method, spreading payments throughout the year.
- 28 June – First instalment
- 28 August – Second instalment
- 28 October – Third instalment
- 15 January – Fourth instalment
- 28 February – Fifth instalment
- 7 May – Sixth instalment
Missing a date? That’s when the IRD starts playing rough—penalties, interest, and a headache you don’t need. Set reminders and stay ahead!
Final Words
Provisional tax might feel like just another IRD headache, but staying on top of it means no nasty surprises or penalties. Whether you’re paying in two, three, or six instalments, picking the right method and meeting deadlines is key.
Not sure which option works best for you? Or worried you might get it wrong? BH Accounting can help you navigate the best tax strategy for your business. Get in touch today and let’s make tax time stress-free.