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:

• standard
• estimation
• ratio option.

The ratio option can only be used from the 2008-2009 tax 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

• 2009 provisional tax (instalments payable on or after 1 April 2009), and 
• 2010 provisional tax (all instalments)

your provisional tax is the same as the previous tax year's residual income tax. 

To calculate your provisional tax for 2011 and beyond, add 5% to the previous tax year's residual income tax, or 10% to the residual income tax from two years previous. Your provisional tax is then paid in two or three equal instalments during the year.

There has been a change in the rates of personal income tax from the 2010 tax year. The change in tax rates affects how you calculate your provisional tax instalments. The standard option of calculating provisional tax for the 2010 year is the residual income tax (RIT) for the immediately preceding income year minus $730.

See below for details.

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 2009 income year (for instalments payable on or after 1 April 2009 only) based on your income from the 2008 income year, use 90% of your RIT. When you calculate payments for the 2010 income year (for all instalments) based on your income from the 2009 income year, use 100% of your RIT. This ensures you do not overpay your provisional tax due to the 2009 change of company tax rate (See key messages about the 2009 change of company tax rate).

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

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).
• 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 2010 tax year estimation:

Income range	Annual tax rate applied
$0 to $14,000	12.5%
$14,001 to $48,000	21%
$48,001 - $70,000	33%
$70,001 and up	38%

• If your income is taxed at the company rate please be aware that there have been rate changes for the 2008-09 and 2009-10 tax years. See key messages about the change of company tax rate 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 2008-2009 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. You can find it under Forms and guides.

Changes in the personal tax rate apply from the 2008-09 tax year

The rate change for personal income tax from the 2009 tax year also affects how your ratio percentage is calculated. This is calculated as follows:

If your business's income is taxed at the company rate the ratio percentage is calculated as follows:

Find out more

• Changes to provisional tax
• Information about the 2009 change of company tax rate for more details about the rate change.

 

 

Date published: 19 May 2009

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