If your circumstances have changed due to COVID-19 (novel coronavirus), you may be able to make an estimate or re-estimate of provisional tax. We can also arrange early refunds if provisional tax has been overpaid.
Provisional tax threshold
The New Zealand Government has recently passed legislation to increase the provisional tax threshold from $2,500 to $5,000. This means any current provisional taxpayers with provisional tax payments of less than $5,000 will have until 7 February following the year they file to pay their tax bill. This is intended to lower compliance costs for smaller taxpayers and allow them to retain cash for longer. We expect that this will reduce the number of taxpayers paying provisional tax by around 95,000.
This is a permanent change that will take effect from the 2020-2021 income year. For most taxpayers, this will mean 1 April 2020.
If you would like to continue paying in instalments throughout the year, you can make a voluntary payment to us or put aside money in a bank account until your tax payment is due.
Effect of the increased provisional tax threshold
The provisional tax threshold determines whether a person is a provisional taxpayer in a tax year and whether they are required to pay provisional tax for a tax year. The increased provisional tax threshold from $2,500 to $5,000 for the 2021 and future tax years may mean that some taxpayers no longer have to pay provisional tax.
For example, if a person has RIT (residual income tax) of $3,500 for the 2020 tax year, they will be a provisional taxpayer for that tax year. For the 2021 tax year the person will not be required to pay provisional tax because the threshold has increased to $5,000 RIT.
However, when the person files their 2021 income tax return, their RIT turns out to be $5,500. They are a provisional taxpayer for the 2021 tax year (even though they were not required to make any 2021 provisional tax payments because in the 2020 tax year their RIT was not at least $5,000).