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The estimation option can help you avoid overpaying or underpaying your provisional tax. It may be right for you if you already pay provisional tax and:

  • your income will decrease over the next year
  • you have a loss which can be offset against your income
  • your income will increase a lot and your residual income tax (RIT) will be more than $60,000 higher than what the standard option has calculated
  • you’ve gone from untaxed income like self-employment, where you must pay your own tax, to salary or wages where your tax is already deducted before you’re paid.

You must use the estimation option if you’re choosing to be a provisional taxpayer and did not have to pay provisional tax last year.

You can estimate what you think your residual income tax will be and pay that instead. If you do not think you’ll have any residual income tax to pay, you can estimate your provisional tax at $0.

You can estimate your provisional tax as many times as you like up until the final instalment date. or, until you return is due - if you're using the temporary loss carry back measure.

Underestimating your provisional tax 

When you use the estimation option, keep a close eye on your profits and estimate again if it looks like you'll earn more than you expected. You could be charged a penalty or interest if your provisional tax estimate is too low compared with your actual residual income tax once you’ve filed your return.

For more information, read our Provisional tax guide – IR289.

Last updated: 05 Jul 2023
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