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Provisional tax
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Provisional tax: Calculating your provisional tax - options

Calculating your provisional tax - options

You can use one of these options to work out your provisional tax:

The ratio option can only be used from the 2009 income year onwards. To use the ratio option you need to be registered for GST.

Standard option

If you don't choose an option, we automatically charge provisional tax using the standard option. How it works:

For individuals

Your provisional tax is based on the previous income year's residual income tax.

There has been a change in the rates of personal income tax from 1 October 2010. The change in tax rates affects how you calculate your provisional tax instalments. The standard option of calculating provisional tax from 1 October 2010 is your residual income tax (RIT) from your last income year's tax return, less 5%. 

If you have not yet filed your last-year's income tax return before the 1st instalment is due, use the RIT from the year before last, less 5%. You will only be liable for provisional tax for the tax year ending 31 March 2011 if this figure is greater than $2,500. Your provisional tax is then paid in two or three equal instalments during the year.

This calculation changes after the 2012 income year, gradually returning to normal by the 2014 income year.  To calculate your provisional tax for 2014 and beyond, add 5% to the previous tax year's residual income tax, or 10% to the residual income tax from two years previous.

See 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 x 95%
2010 RIT x 95%
2012 2010 RIT x 95%
2011 RIT x 95%
2013 2011 RIT (no adjustment)
2012 RIT + 5%
2014 and onwards 2012 RIT + 10%
2013 RIT + 5%

For companies and those taxed as companies

Change in the tax rates may affect the calculation of your provisional tax if your business's income is taxed at the company rate.

When you calculate payments for the 2012 income year (for all instalments) based on your income from the 2011 income year, use 100% of your RIT. You will only be liable for provisional tax if this figure is greater than $2,500. This ensures you do not overpay your provisional tax due to the 2012 change of company tax rate. See our Budget 2010 changes page for more details.

Year for provisional tax being calculated Year of RIT amount used Adjustment
2012 2010 105% of RIT
2011 RIT (no adjustment)
2013 2011 105% of RIT
2012 105% of RIT
2014 and onwards Two years previous RIT + 10%
Previous years RIT + 5%

For other non-individuals not taxed as a company (eg, trusts or estates)

Year for provisional tax being calculated Year of RIT amount used Adjustment
2012 2010 RIT + 10%
2011 RIT + 5% 
2013 2011 RIT + 10%
2012 RIT + 5%
2014 Two years previous RIT + 10%
Previous years RIT + 5%

Estimation option

To work out your provisional tax, you need to estimate your RIT. When working out your income tax, please note:

  • Under the estimation option, your provisional tax is paid in two or three equal instalments during the year (the same as the standard option).
  • You will only be liable for provisional tax if this figure is greater than $2,500.
  • To get the right tax rate:
    • add up all your estimated income
    • work out the tax on the total using the correct tax rate
    • then subtract any tax credits (like PAYE).
  • If your estimated RIT is lower than your actual RIT for that year, you'll be liable for interest on the underpaid amount.
  • You can estimate your provisional tax as many times as necessary up to and including your last instalment date. Each estimate must be fair and reasonable.
  • For individuals and unincorporated clubs or societies that are taxed at the individual rate you may use the following tax rates for calculating your 2011 income year estimation from 1 October 2010:
Income range Annual tax rate applied
$0 to $14,000 11.5%
$14,001 to $48,000 19.25%
$48,001 - $70,000 31.5%
$70,001 and up 35.5%
  • When calculating your 2012 and future tax years estimation, you may use the following rates:
Income range Annual tax rate applied
$0 to $14,000 10.5%
$14,001 to $48,000 17.5%
$48,001 - $70,000 30%
$70,001 and up 33%
  • If your income is taxed at the company rate please be aware that there have been tax rate changes from the 2012 income year onwards. See our Budget 2010 changes page for more details.

Ratio option

You pay provisional tax based on your GST taxable supplies for each two-month period. You'll make six provisional tax payments of differing amounts depending on your taxable supplies during each two-month period.

We calculate your ratio percentage and you multiply this by your previous two months GST taxable supplies to get the amount of provisional tax you need to pay.

Are you eligible to use the ratio option?

  • You need to meet certain criteria.
  • You must be registered for GST.
  • Under the ratio option, you'll pay provisional tax six times during the year - the amount you pay varies depending on your GST taxable supplies.
  • The ratio option is only available from the start of the 2009 tax year onwards.
  • You must apply to use the ratio option before the start of the tax year you want to use it in. You can do this in writing or by calling us. See Contact us.

For more information and an example using the ratio option, please see our A new way to calculate your provisional tax (IR851) brochure.

Changes in the personal tax rate apply from 1 October 2010 (the 2011 income year)

The rate change for personal income tax from 1 October 2010 affects how your ratio percentage is calculated. This is calculated as follows:

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 as follows effective from 1 April 2011:

Year RIT previous year
2012 2011 RIT - 5% 
(2011 taxable supplies - asset adjustments) x 100
2013 2012 RIT 
(2012 taxable supplies - asset adjustments) x 100
2014 2013 RIT 
(2013 taxable supplies - asset adjustments) x 100

Find out more

 


Date published: 26 Aug 2010

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