Provisional tax helps you manage your income tax. You pay it in instalments during the year instead of a lump sum at the end of the year.
You'll have to pay provisional tax if you had to pay more than $5,000 tax at the end of the year from your last return. $2,500 before the 2020 return.
It's payable the following year after your tax return. For example, if your residual income tax from your 2020 return is more than $5,000, then you'll need to pay provisional tax during the 2021 tax year.
Provisional taxpayers often earn:
- self-employed income
- rental income
- income earned as a contractor
- income from a partnership
- overseas income.
In light of COVID-19 the provisional tax threshold has been increased 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.