Provisional Tax in New Zealand

Updated for the 2026/27 tax year

What provisional tax is for

Provisional tax exists because New Zealand does not withhold tax from every kind of income. Salary and wage earners pay through PAYE as they earn. Someone with self-employed income, rental income, contracting income, partnership income or overseas income does not have that mechanism, so Inland Revenue collects the tax in instalments during the year instead of as one lump sum afterwards.

Inland Revenue's own description is the clearest one: provisional tax helps you manage your income tax, and you pay it in instalments during the year rather than a lump sum at the end.

The $5,000 trigger

The obligation turns on a single number from your last return: your residual income tax (RIT) — the tax you had to pay at the end of the year after subtracting the tax already deducted at source.

• RIT of $5,000 or less: no provisional tax. You pay the balance as terminal tax on the normal due date.
• RIT of more than $5,000: provisional tax begins the following tax year.

The timing is where people get caught. The trigger year and the payment year are different. Inland Revenue's example: if your residual income tax from your 2023 return is more than $5,000, you pay provisional tax during the 2024 tax year. Your first instalment can therefore fall due in August of the year after the income was earned, well before the return that proves the final figure has been filed.

Who ends up paying it

There is also a category Inland Revenue calls reportable income — cases where tax was not deducted, or not enough of it was. The triggers listed are incorrect use of a tax code or rate for PAYE, interest or dividends; lump sum payments that had tax deducted but not enough; employee share scheme income with no tax deducted; and property sales caught by the bright-line rule. Someone on a salary can therefore find themselves in provisional tax without ever being self-employed.

The four ways to work out provisional tax

You have a choice of method. The default is the standard option unless you adopt another one.

Standard option — previous year plus an uplift

This is the default, and it is the simplest to administer.

• No extension of time to file: your provisional tax is your previous year's RIT plus 5%. Inland Revenue is explicit that this applies even if you file your return after one of the provisional tax dates.
• With an extension of time to file: an uplift of 10% is used on the RIT from two years earlier until your previous return is filed, and then the 5% basis takes over.
• Instalments: three payments with a standard 31 March balance date, unless you are registered for GST and file six-monthly GST returns, in which case you pay two.

Note the practical effect of the 5% uplift: provisional tax is deliberately set slightly above last year's liability, so a taxpayer with flat or rising income is normally covered and ends up with a small terminal tax payment rather than a shortfall.

Estimation option

You estimate what this year's RIT will actually be. This is the right method when income is clearly falling — a business that has lost its biggest contract, or a landlord whose property has been sold. The risk is symmetric to the reward: if you estimate too low, Inland Revenue can charge interest on the underpaid tax, so estimates should be defensible.

GST ratio option

If you are GST-registered, you can pay provisional tax as a fixed percentage of your GST-supplied income, calculated from a ratio Inland Revenue works out for you. It is available in place of the standard or estimation option.

Accounting income method (AIM)

AIM is for businesses whose accounting software calculates provisional tax from their actual results as they go. Payments and statement-of-activity filing line up with GST due dates. For a March balance date filing monthly GST returns, that means a statement of activity every month; if you file two-monthly or six-monthly GST returns, or are not registered for GST, it is every two months.

The payment dates

With a standard 31 March balance date, the dates depend on your method.

If your balance date is not 31 March, your dates will differ. The reliable way to get them is to log in to myIR, open the income tax tile and select View provisional tax — that shows the dates that actually apply to you rather than a generic table.

Terminal tax — the fourth payment nobody expects

Provisional tax during the year does not settle the account. When the year is assessed, the difference between the provisional tax paid and the actual liability is terminal tax.

• Underpay during the year and the remainder is due by 7 February after the assessment (7 April for clients of a tax agent with an extension of time).
• Overpay and the excess comes back as a refund, normally processed with the automatic assessment.

Terminal tax is the reason an August, January, May payment rhythm still produces a February bill. If your income grew through the year, the shortfall lands there.

Interest, penalties and tax pooling

Provisional tax is where interest exposure is highest, because shortfalls are measured on large numbers over long periods. Two mitigations are worth knowing:

• Use-of-money interest applies to underpaid tax. It runs at different rates for underpayments and overpayments, and the rates change from year to year. Our penalties and interest guide covers the mechanics and the remission rules.
• Tax pooling allows an intermediary to shift underpayments and overpayments between taxpayers and date them to the original due date, which is commonly used to reduce or eliminate the interest on a provisional tax shortfall.

Note that late payment penalties and use-of-money interest are separate charges, and both can apply at the same time.

Working number by number

A worked example using the standard option. Last year's residual income tax was $18,000 on self-employed income.

1. Add the 5% uplift: $18,000 × 1.05 = $18,900 of provisional tax for the year.
2. Divide into three instalments: $18,900 ÷ 3 = $6,300 each.
3. Pay $6,300 on 28 August, $6,300 on 15 January and $6,300 on 7 May.
4. If the actual liability turns out to be $21,000, the difference of $2,100 is terminal tax, due 7 February.

If income had fallen to $14,000 instead, the standard option would have overpaid by thousands. That is exactly the case the estimation option is designed for.

A practical checklist

1. Find your residual income tax on the last assessment in myIR — that is the number the whole system turns on.
2. Confirm the method and the dates that apply to your balance date in myIR rather than assuming the March dates.
3. Set the three (or six, or twelve) dates as recurring calendar reminders with the amounts attached.
4. Review the figure after your mid-year accounts, not in May when it is too late to change method.
5. Keep provisional tax and GST in separate payment streams — paying GST late to fund provisional tax simply moves the penalty from one account to the other.
6. If income has clearly moved, change method deliberately and document the reasoning.

Common mistakes

• Assuming provisional tax starts the year the income is earned. It starts the year after the assessment that triggers it.
• Forgetting that terminal tax still exists. Three instalments do not mean the account is settled.
• Treating the 5% uplift as an overcharge. It is a safe harbour: paying on time under the standard option protects you from interest if income is broadly flat.
• Ignoring reportable income. A one-off untaxed payment can push a salary earner over the $5,000 line.
• Using an estimate without evidence. Estimates that are too low attract interest.
• Missing a date because it fell on a weekend — check the current rule with Inland Revenue for the specific date rather than assuming a shift.