Provisional tax: Changes
Changes to provisional tax
Your provisional tax payment dates have changed, and if you're eligible, you'll be able to calculate your provisional tax instalments based on a percentage of your previous year's GST taxable supplies (sales).
- When did these changes take effect?
- How does this affect me?
- What if I only pay provisional tax and not GST?
- What are my provisional tax due dates if I also pay GST?
- Have the end-of-year tax due dates changed?
- Can I still make voluntary provisional tax payments?
- What is the ratio option for calculating provisional tax?
- Who can use the ratio option for calculating provisional tax?
- Who will calculate the ratio?
- How will I calculate my provisional tax instalments?
- How many instalments do I need to make?
- Can I stop using the ratio option?
- Do I have to use the ratio calculation option?
- Will I be affected by use-of-money interest (UOMI) if I use the ratio option?
- Are the due dates for student loan interim repayments also changing?
In addition:
- The tax rate has changed for businesses whose income is taxed at the company rate (see Taxing companies for the list). If you are one of these, you will also need to take account of the new tax rate. See Key messages about the change of company tax rate for more details.
- For calculating provisional tax instalments payable on or after 1 April 2010 for the 2011 income year and for all provisional tax instalments for the 2012 income year see Provisional Tax for details.
When did these changes take effect?
From the start of your 2009 income year. For most customers, 1 April 2008.
For the calculation of provisional tax in the 2009 income year (for instalments due on or after 1 April 2009) and in the 2010 income year (for all instalments), 1 April 2009.
How does this affect me?
If you're registered for GST and liable to pay provisional tax, you'll be able to pay both taxes at the same time. This is done using a new GST and provisional tax return (GST103) in the months when your provisional tax is due. This means you'll only need to complete one form and make one payment during these months.
The ratio option for calculating provisional tax better reflects your cash flow, and uses this to work out how much provisional tax you need to pay. This may suit businesses that have fluctuating income during the year.
You can still use the standard (uplift) or estimation options to calculate your provisional tax if you want to.
Note that, regardless of which option you use, if your business's income is taxed at the company rate, you will also be affected by the 2009 reduction of this rate. See Key messages about the 2009 change of company tax rate for more details.
What if I only pay provisional tax and not GST?
Provisional tax payment due dates have changed. See the due dates for your provisional tax payments below.
| If you... | then your provisional tax due dates will be... |
|---|---|
| have a standard 31 March balance date |
|
| don't have a standard 31 March balance date |
the 28th of the:
|
What are my provisional tax due dates if I also pay GST?
Your provisional tax due dates will depend on your balance date, the option you use to calculate your provisional tax payments, and your GST filing frequency.
| Calculation option | Your GST filing frequency | Number of provisional tax instalments | Payment due dates |
|---|---|---|---|
| Standard or estimation | One- or two-monthly | Three instalments |
28 August 15 January 7 May |
| Six-monthly | Two instalments |
28 October 7 May |
|
| Ratio option | One- or two-monthly | Six instalments |
28 June 28 August 28 October 15 January 28 February 7 May |
| Six-monthly | The ratio option is not available for six-monthly filers | ||
| Calculation option | Your GST filing frequency | Number of provisional tax instalments | Payment due dates |
|---|---|---|---|
| Standard or estimation | One- or two-monthly | Three instalments |
The 28th of the:
|
| Six-monthly | Two instalments |
The 28th of the:
|
|
| Ratio option | One- or two-monthly | Six instalments |
The 28th of the:
For one-monthly GST customers, your provisional tax payments will be due on every second GST return. For two-monthly GST customers, your provisional tax payments will be due at the same time as your GST returns. |
| Six-monthly | The ratio option is not available for six-monthly filers | ||
Have the end-of-year tax due dates changed?
No, your end-of year tax due date remains the same. If you have a standard balance date, your end-of-year due date remains at 7 February or 7 April if you have a tax agent with an extension of time.
Can I still make voluntary provisional tax payments?
Yes, you can make voluntary provisional tax payments at any time during the year. The GST and provisional tax return (GST103) will have a section for you to do this in.
What is the ratio option for calculating provisional tax?
The ratio option is based on a percentage of your GST taxable supplies so it'll reflect your cash flow. It's designed to benefit small to medium-sized businesses:
- because they can pay tax at the same time as they receive their income
- if they have fluctuating income and turnover.
The ratio option will not suit all businesses. We recommend that you consider how your business will be affected and satisfy yourself that it suits your specific business needs, or seek professional advice, before electing this option.
You'll still be able to use the standard (uplift) or estimation options if you'd prefer.
Read below for more information about the ratio option. You can also download a copy of our A new way to work out your provisional tax (IR851) brochure which is available under Forms and guides. It includes information to help you to decide if you're able to use the ratio option, and shows you how it will work and how to apply to use it.
Who can use the ratio option for calculating provisional tax?
You can use the ratio option, if you meet all of the following criteria:
- you've been in business and GST-registered, and providing GST returns for all of the previous income year (this must not have been your first year in business)
- your residual income tax (RIT) for the previous year is greater than $2500 and up to $150,000
- you file your GST returns monthly or two-monthly
- the business you're operating is not a partnership
- your ratio percentage is between 0% and 100% (we'll let you know if it's not).
Who will calculate the ratio?
If your application is accepted, we'll calculate your ratio, and write to you with your ratio percentage.
Your ratio percentage may change from time to time as a result of assessments or reassessments of your GST or income tax for the previous year, so we'll write to you with your new ratio percentage.
How is my ratio calculated?
We'll apply one of the following rules, depending on the rate at which you are taxed and the income year:
If your business's income is taxed at the company tax rate (see Taxing companies for the list), and you're calculating a payment for the 2012 income year, we'll calculate your ratio percentage by applying the following rule:
| Ratio percentage | = | RIT from the previous income year - 5% | x | 100 |
| GST taxable supplies from the previous year | 1 |
(This special situation is different because the company tax rate has reduced to 28% for the 2012 income year onward. The percentage is lower to ensure you do not over-pay. See CTR key messages for more details.)
Otherwise, we'll apply the following rule:
| Ratio percentage | = | RIT from the previous income year | x | 100 |
| GST taxable supplies from the previous year | 1 |
There has been a change in the rates of personal income tax from 1 October 2010. The method of calculating provisional tax from 1 October 2010 is the residual income tax (RIT) for the immediately preceding income year less 10%. This means that your ratio percentage is calculated as follows:
| Ratio percentage | = | RIT from the previous income year - 10% | x | 100 |
| GST taxable supplies from the previous year | 1 |
For more information see Calculation options.
| Example (individual) | ||
|---|---|---|
| RIT from the previous year: $15,000 - 10% | $13,500 | |
| GST taxable supplies from the previous year: | $200,000 | |
| Ratio percentage = | $13,500 divided by $200,000 = |
0.0675 x 100 = 6.7% |
Please note the RIT percentage adjustment will change each year (see calculating your provisional tax - options).
How will I calculate my provisional tax instalments?
Each time a provisional tax instalment is due, your GST and provisional tax return (GST103) will instruct you to calculate your instalment amount by multiplying your ratio percentage by your GST sales figure for the latest two-monthly period.
| Example | ||
|---|---|---|
| Your current two-monthly GST taxable supplies are: | $30,000 | |
| Your ratio percentage is: | 7.1% | |
| Calculation: | $30,000 x 7.1% = | $2,130 (this is the provisional tax due) |
How many instalments do I need to make?
You'll make six provisional tax instalments using the ratio option instead of the three that you make currently. Because you'll be paying your provisional tax and GST on the same return, you'll need to have a monthly or two-monthly GST filing frequency.
| If you use the... | and your GST filing frequency is... | then you'll need to make... |
|---|---|---|
| ratio option | monthly or two-monthly1 | six provisional tax instalments.2 |
| standard or estimation option | monthly or two-monthly | three provisional tax instalments. |
| six-monthly | two provisional tax instalments. | |
| 1 Because you'll be paying your provisional tax and GST on the same return, you'll need to have a monthly or two-monthly GST filing frequency. | ||
| 2 This is instead of the three that you make currently. | ||
Can I stop using the ratio option?
You will be able to stop using the ratio option at any time during the year. If the due date for the first instalment has passed you'll only be able to use the estimation option (not the standard option) to calculate your provisional tax instalments for the rest of the year.
You won't be able to continue using the ratio option if:
- you cease your GST registration
- any of your GST returns are overdue by 60 days
- your ratio percentage changes and is no longer between 0% and 100% or
- a new income tax assessment results in residual income tax below $2,500 or above $150,000.
Do I have to use the ratio option?
No, the current standard and estimation options will still be available.
If you don't choose the ratio option, you'll still be able to use the estimation or standard options to calculate your provisional tax instead.
If you've applied to use the ratio option, and you decide you no longer want to use it, you'll just need to let us know. If it's before your first provisional tax instalment date then you can use the standard or estimate option. If after the first instalment date then you are required to estimate your provisional tax.
Remember that, regardless of which option you use, if your business's income is taxed at the company rate, the 2012 reduction in that rate will also affect you. See Key messages about the change of company tax rate for more details.
Will I be affected by use-of-money interest (UOMI) if I use the ratio option?
If you make the correct provisional tax payments by the due dates each year and use the ratio option to calculate these, you won't be charged any UOMI if you have a provisional tax shortfall.
If you stop using the ratio option after the due date for your first instalment, you'll need to use the estimation method to calculate your provisional tax instalments for the remainder of the year. The usual UOMI rules will apply from this time.
Are the due dates for student loan interim repayments also changing?
Yes, your student loan interim repayment due dates will change.
| If you... | then your student loan interim repayments will be due on... |
|---|---|
| have a standard 31 March balance date |
|
| don't have a standard 31 March balance date |
the 28th of the:
|
Date published: 26 Aug 2010
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