March, June, November balance dates
December, August, April balance dates
January, September, May balance dates
February, October and June balance dates
A new method for calculating your provisional tax came into effect 1 April 2018 and it could make paying your provisional tax a whole lot easier.
The Accounting Income Method, otherwise known as AIM calculates your provisional tax based on your profit for the year to date. Your payments are aligned with your GST return and are paid either monthly or two monthly. Think of it as PAYE for businesses.
AIM IS A SUITABLE OPTION FOR:
Businesses with unpredictable income
Businesses who want to keep on top of their tax during the year
WHAT ARE THE BENEFITS?
AM I ELIGIBLE?You can use AIM to calculate your provisional tax if:
Tax Calendar 2017 - 2018
Now avaliable to download
Download our helpful income tax
Download our helpful AIM information
What is the difference between Provisional Tax and Terminal Tax?
Provisional and Terminal tax are both types of Income Tax. Once a taxpayer’s year end profit is finalised, the total Income Tax liability is calculated based on the taxpayers tax rate (eg, for a company the tax rate is 28%). This total amount can be paid by either Terminal Tax after year end and/or Provisional Tax during the year, depending on the circumstances.
Terminal Tax is the actual amount of tax that is due after a tax return is finalised and assessed by the Inland Revenue. Terminal Tax for a financial year is generally paid a decent length of time after the balance date of the entity passes (eg, for most 31 March balance dates, Terminal Tax is due 13 months later on 7 April).
Many entities are also required to pay Income Tax in the form of Provisional Tax. This is ‘guessed’ tax which is paid during a financial year for that financial year. Then at year end once the tax return is calculated, if Provisional Tax has been under or over paid then the entity is either liable for a Terminal Tax payment or owed a Terminal Tax refund. Therefore the addition of Provisional and Terminal Tax paid by one entity for a financial year is the total Income Tax liability. See below for the methods of how Provisional Tax is calculated.
How does Inland Revenue calculate your provisional tax?
Inland Revenue's default method (known as uplift method), is generally calculated based on a persons last filed income tax return. Its calculated as 105% of previous years income tax liability (or 110% if you haven't filed the last years return by the provisional tax due date). Download our helpful tool.
This works great (well that might be a stretch) for business and/or individuals that earn generally the same year on year. But if you have any significant changes to your bottom line this will result in a significant under or overpayment in tax and having your hard earned cash sitting unnecessarily with Inland Revenue will NOT be a good return on investment (Inland Revenue are only paying out 1.02% on any overpaid tax!).
Please contact your RightWay team if you think your income has changed signifcantly so we can discucss with your the impact this will have on your tax payments. For more information from the IRD, click here.
When should I be paying provisional tax?
This depends on when the tax paying entity’s balance date is. Generally, provisional tax is paid in three equal instalments during the financial year. If an entity is six-monthly registered for GST then provisional tax is paid in two equal instalments.
For a taxpayer with a March balance date, who isn’t six-monthly registered for GST, then Provisional Tax will be due, if required, on 28 August, 15 January and 7 May each year with Terminal Tax due on the following 7 February or 7 April. If you have a different balance date, please contact us or use the following IRD link to work out when your provisional tax is due here.
It’s not an exact science and there are reasons why you may or may not owe tax, or the instalments may not be equal. If you’re unsure and would like some help with planning when your tax will fall due, please let us know.
Still have questions? You can download more frequently asked questions below.
Provisional tax makes it easier to pay your income tax by spreading the payments over the year. If your end-of-year tax was more than $2,500 then you'll have to pay provisional tax the following year.
Provisional tax is a way of spreading your tax payments throughout the year. If you have income tax to pay of more than $2,500 from your last income tax year you'll most likely become a provisional tax payer.
Download the guide here.