Calculation options
You can calculate your provisional tax payment using the:
Calculate your provisional tax using the standard option
- 2011 provisional tax (instalments payable on or after 1 October 2010), and
- 2012 provisional tax (all instalments).
There's been a change in the rates of personal income tax from the 2011 tax year. The change in tax rates temporarily affects how you calculate your provisional tax instalments. The standard option of calculating provisional tax for the 2011 year (instalments payable on or after 1 October 2010) and the 2012 year (all instalments) is the residual income tax (RIT) for the immediately preceding income year less 5%.
Note
If your RIT less 5% is $2,500 or less you do not need to pay provisional tax for that year.
See the table below for details:
| Year for provisional tax being calculated | Year of RIT amount used | Adjustment |
|---|---|---|
| 2011 (instalments payable on or after 1 October 2010) | 2009 | RIT - 5% |
| 2010 | RIT - 5% | |
| 2012 | 2010 | RIT - 5% |
| 2011 | RIT - 5% | |
| 2013 | 2011 | RIT (no adjustment) |
| 2012 | RIT + 5% | |
| 2014 and onward | 2012 | RIT + 10% |
| 2013 | RIT + 5% |
Important
- Changes in the tax rates may have an effect on the calculation of your provisional tax.
- The Taxation (Budget Measures) Act 2010 reduces the company tax rate from 30% to 28% with application from the start of 2012 income year. As part of these changes the above Act has amended sections RZ 3 to RZ 5 to provide transitional provisions for calculating provisional tax for the 2012 and 2013 income years to take into account the reduced tax rate. For companies these are as follows:
| Year for provisional tax being calculated | Year of RIT amount used | Adjustment |
|---|---|---|
| 2012 | 2010 | RIT + 5% |
| 2011 | RIT (no adjustment) | |
| 2013 | 2011 | RIT + 5% |
| 2012 | RIT + 5% | |
| 2014 and onward | Two years previous | RIT + 10% |
| Previous year | RIT + 5% |
Note
We automatically use the standard option to charge provisional tax unless you choose the estimation or ratio option.
Please see our Provisional tax guide (IR289) under Forms and guides for more information.
Calculate your provisional tax using the estimation option
To calculate your provisional tax using the estimation option, estimate what your residual income tax for the tax year will be. To do this, you:
- add up all your estimated income
- work out the tax on the total, then
- subtract any tax credits (like PAYE).
You can estimate your provisional tax as many times as necessary up to and including your last payment due date for the tax year. Each estimate must be fair and reasonable.
Note
You may estimate using the following rates for the 2011 and 2012 income years if you are taxed at the individual rates:
| Income range | 2011 annual tax rate applied | 2012 annual tax rate applied |
|---|---|---|
| $0 - $14,000 | 11.5% | 10.5% |
| $14,001 - $48,000 | 19.25% | 17.5% |
| $48,001 - $70,000 | 31.5% | 30% |
| $70,001 and higher | 35.5% | 33% |
Important
If your estimated residual income tax is lower than your actual residual income tax for that tax year, you may be liable for interest on the underpaid amount.
Calculate your provisional tax using the ratio option
To calculate your provisional tax using the ratio option, you multiply your ratio by your total GST taxable supplies for:
- the two-month period if you file your GST return two-monthly, or
- for two GST return periods if you file your GST return one-monthly.
There has been a change in the rates of personal income tax from the 2011 income year. The change in tax rates temporarily affects how your ratio percentage is calculated.
See the table below for details:
| Year | RIT previous year | RIT two years previous |
|---|---|---|
| 2011 |
(2010 RIT - 10%) (2010 taxable supplies - asset adjustments) x 100 |
(2009 RIT - 15%) (2009 taxable supplies - asset adjustments) x 100 |
| 2012 |
(2011 RIT - 10%) (2011 taxable supplies - asset adjustments) x 100 |
(2010 RIT - 15%) (2010 taxable supplies - asset adjustments) x 100 |
| 2013 |
(2012 RIT (original formula)) (2012 taxable supplies - asset adjustments) x 100 |
(2011 RIT - 10%) (2011 taxable supplies - asset adjustments) x 100 |
| 2014 |
(2013 RIT (original formula)) (2013 taxable supplies - asset adjustments) x 100 |
(2012 RIT (original formula)) (2012 taxable supplies - asset adjustments) x 100 |
If your business's income is taxed at the company rate the ratio percentage is calculated from the start of the 2012 income year as follows:
| Year | RIT previous year | RIT two years previous |
|---|---|---|
| 2012 |
2011 RIT - 5%) (2011 taxable supplies - asset adjustments) |
2010 RIT - 5%) (2010 taxable supplies - asset adjustments) |
| 2013 |
2012 RIT (2012 taxable supplies - asset adjustments) |
2011 RIT - 5%) (2011 taxable supplies - asset adjustments) |
| 2014 |
2013 RIT (2013 taxable supplies - asset adjustments) |
2012 RIT (2012 taxable supplies - asset adjustments) |
Example: Calculating provisional tax - the ratio option using individual rates
Angela sells second-hand computers over the internet and meets all the criteria to qualify for the ratio option. Angela is a two-monthly GST payer and decides that she wants to base her provisional tax on her GST taxable supplies starting in the 2012 income year.
The Commissioner advises Angela that her ratio percentage is 7%. This is calculated from her residual income tax and taxable supplies figures for the 2010 income year. Her residual income tax figure for that year was $20,730 and her taxable supplies figure was $250,000. The residual income tax figure less 15% (as a result of the tax rate reduction) is divided by the taxable supplies figure and multiplied by 100 to express the result as a percentage:
$20,730 - 15% / $250,000 x 100 = 7%
The ratio percentage is 7%.
Angela must apply the ratio to each of her GST period's taxable supplies to determine the amount of the provisional tax instalment. Angela's taxable supplies for her first GST period amount to $13,000 and her provisional tax liability for that period will be $910 (13,000 x 7% = 910). The same formula must be used to calculate her provisional tax instalment for the other five GST periods.
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Date published: 26 Oct 2010
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