Interest is not a penalty. It is a charge for the use of money. This means we may:
- charge you interest on late provisional or end of year tax payments
- pay you interest if you overpay your provisional tax.
We will work out the interest charges once you’ve filed your income tax return. We will not charge or pay interest if you under or overpay by $100 or less.
If you use the accounting income method (AIM)
- We will not pay you interest if you overpay your provisional tax.
- We will charge interest if you pay late or underpay your provisional tax, from the day after the instalment was due.
- Once a Statement of Activity is filed, we will charge penalties and interest from the day after the due date for each instalment. This is different from other provisional options where the penalties and interest will not be charged until the end of year income tax return is filed.
If you use the ratio option
- If you pay on time, we will not charge or pay you interest on your provisional tax.
- We may charge interest if you owe more than $100 after your end of year tax due date (7 February, or 7 April if you have a tax agent with an extension of time).
- We may charge penalties if provisional instalments are paid late or underpaid.
If you use the standard option
RIT of under $60,000
If your residual income tax (RIT) is less than $60,000, we'll charge or pay you interest from the day after the end of year tax due date.
Before the 2023 income year, we charged interest on any late instalments from the day after the missed (or short-paid) instalment.
RIT of $60,000 or more
If your RIT is $60,000 or more, we'll charge or pay you interest from the day after the final instalment date if you have made your payments in full and on time.
We will work out interest on the difference between the provisional tax you have paid and your residual income tax.
If you have paid all but your final instalment in full and on time, we will charge interest from the final instalment due date. This allows you to make a payment that is different to your final standard instalment.
If you use the standard method then estimate your final instalment, you will have UOMI calculated as if you estimated for the full Interest year.
For instalments, other than the final instalment, if you pay an instalment late, or if you do not pay an instalment at all, we will charge interest from the day after the instalment due date. Interest is charged on the smaller of:
- the instalment minus the amount already paid
- your residual income tax divided by the number of instalments for the tax year, minus the amount already paid.
These rules may not apply to you if you are associated persons and one of you:
- is a company that is not covered by the above standard option rules
- uses the GST ratio option
- has entered a provisional tax interest avoidance arrangement.
If you use the estimation option
- We may charge interest from the first provisional tax instalment date if you use the estimation method.
- If you underestimate, we may charge you penalties and interest on the difference, from the provisional instalment dates. You may be charged even if you paid your estimated provisional tax in full and on time.
- If you overestimate, you will be entitled to receive any interest due. If you overestimate, you are treated as having taken reasonable care in making the estimate.
This higher chance of penalties and interest is why it is important to estimate your residual income tax carefully, and to estimate again if your income increases.
Electing to be a provisional taxpayer
If you are not a provisional taxpayer but expect your RIT to be more than $5,000 you may choose to be a provisional taxpayer and this will mean you are paid UOMI for overpayments. In this case, you must use the estimation option for the year of your election.
If you are filing by paper, attach a letter to the return. If you are filing online, send us a message in myIR on the same day that you file your return. Use the term ;elect to be a provisional taxpayer
If you want to formally elect to become a provisional taxpayer, you will need to:
- have paid at least $5,000 by the final instalment date (7 May for most people)
- send your request at the same time as filing that year's income tax return.
New provisional taxpayers
Special rules apply if you are a new provisional taxpayer and you have started a taxable activity during the year.
We will calculate interest from the day after your first provisional instalment would have been due if one of the following apply:
- you use the estimation option and your residual income tax is more than $5,000 (or you elected to be a provisional taxpayer)
- your residual income tax is $60,000 or more and you are a new provisional taxpayer for that particular income year.
If you have started a business and you think you will be in one of these situations, you may want to talk to a tax agent about estimating your income.