September, May and January balance dates.
Terminal tax for all taxpayers with EOT
March, June and November balance dates.
December, August, April balance dates
Tax Calendar 2017 - 2018
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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.
I have heard you can estimate your provisional tax, what does that mean?
Estimating provisional tax means that you are advising the IRD what you think you should pay, rather than following the uplift method that is described above.
We work with our clients, to ensure any estimates filed are reasonable. All our clients are on Xero so this is easy to achieve as we are dealing with real and up to date information. At any given stage we can advise our clients on what their likely income tax will be based on actual YTD results and forecasting them over the remaining months of the year.
Filing an estimate that is vastly different from your actual year end result, can leave you open to shortfall penalties. We only recommend filing an estimate to Inland Revenue in certain circumstances.
What happens if I do not make my prov tax payment?
Generally, you will be charged Use of Money Interest ('UOMI') and Late Payment Penalties ('LPP') which are compounding.
If you want to know more, click here for more details.
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.
Talk to us! Reach out to your Accountant and we can work with you to sort out the best solution. It might be that we liaise with Inland Revenue on your behalf to set up a payment plan, work with one of the tax pooling intermediaries or something else. We will work with you to avoid you having to incur any unnecessary UOMI or LPPs.
Its important to ensure all payments to Inland Revenue are made on time or an arrangement has been sorted with them, to maintain a good relationship with Inland Revenue.
You should factor in your three provisional tax instalments into your yearly cash flow forecast. We can help you with this, talk to us about creating a budget and or cash flow forecast for you and your business.
Who needs to pay provisional tax?
Once a taxpayer’s final tax bill is calculated, if that ‘Residual Income Tax’ amount exceeds the IRD’s threshold of $2,500 then the taxpayer will enter the provisional tax regime the following year. Ask us if you’re unsure.
Note, if you operate your business out of a company, it is not necessarily the company that pays the tax. The profit in your company may be moved out to you as a shareholder (by way of a ‘shareholder’s salary) and you will end up paying Provisional Tax in your own name instead! We will work with you to determine where the income is best to sit – that’s what we do best!
What happens if I over pay my provisional tax?
Any overpaid provisional tax gets refunded once your income tax return is filed and processed with Inland Revenue. Note a person only gets paid interest at the rate of 1.02% for any over paid tax.
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.