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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:

  • 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:

  • You calculate the total amount of provisional tax payable for a year by taking your previous year's residual income tax (RIT) and adding 5%. Your provisional tax is then paid in two or three equal instalments during the year.
  • Changes in the personal tax rate apply from the 2008-09 tax year.
    There has been a change in the rates of personal income tax from the 2009 tax year. The change in tax rates affects how you calculate your provisional tax instalments. The standard option of calculating provisional tax for the 2009 year is the residual income tax (RIT) for the immediately preceding income year minus $730.00 + 5%.
    See below for details.
    Year for provisional tax being calculated Year of RIT amount used Adjustment
    2009 2007 RIT - $730 + 10%
    2008 RIT - $730 + 5%
    2010 2008 RIT - $1,460 + 10%
    2009 RIT - $730 + 5%
    2011 2009 RIT - $1,327.50 + 10%
    2010 RIT - $597.50 + 5%
    2012 2010 RIT - $1,410 + 10%
    2011 RIT - $812.50 + 5%
    2013 2011 RIT - $812.50 + 10%
    2012 (back to original calculation) RIT + 5%
  • 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 2008-09 income year (only) based on your income from the 2007-08 income year, use 95% of your RIT rather than 105%. 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.

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 2009 tax year estimation:
Income range Annual tax rate applied
$0 - $9,500 13.75%
$9,501 - $14,000 16.75%
$14,001 - $38,000 21%
$38,001 - $40,000 27%
$40,001 - $60,000 33%
$60,001 - $70,000 36%
$70,001 and higher 39%

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:

    Year RIT previous year RIT two years previous
    2009 (2008 RIT - $730) 
    (2008 taxable supplies - asset adjustments) x 100    		 (2007 RIT - $730) 
    (2007 taxable supplies - asset adjustments) x 100
    2010 (2009 RIT - $730) 
    (2009 taxable supplies - asset adjustments) x 100    		 (2008 RIT - $1,460) 
    (2008 taxable supplies - asset adjustments) x 100
    2011 (2010 RIT - $597.50) 
    (2010 taxable supplies - asset adjustments) x 100    		 (2009 RIT - $1,327.50) 
    (2009 taxable supplies - asset adjustments) x 100
    2012 (2011 RIT - $812.50) 
    (2011 taxable supplies - asset adjustments) x 100    		 (2010 RIT - $1,410) 
    (2010 taxable supplies - asset adjustments) x 100
    2013 (2012 RIT (original formula)) 
    (2012 taxable supplies - asset adjustments) x 100    		 (2011 RIT - $812.50) 
    (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:

    Year RIT previous year
    2009 2008 RIT x 90 
    (2008 taxable supplies - asset adjustments)
    2010 2009 RIT 
    (2009 taxable supplies - asset adjustments)
    2011 2010 RIT 
    (2010 taxable supplies - asset adjustments)

Find out more:

 


Date published: 06 Oct 2008

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