Provisional tax is how self-employed people, contractors, landlords, and investors pay income tax throughout the year instead of a lump sum at the end. If your residual income tax (the tax you owe after all PAYE and other credits) was more than $5,000 in the prior year, you are required to pay provisional tax in instalments. There are three methods: the standard uplift (105% or 110% of last year's tax), the estimation method, and the AIM method through accounting software. This calculator shows your obligations under all three, your due dates, and whether you are at risk of use-of-money interest.
Enter your prior year residual income tax and estimated current year income to see all three methods compared
Provisional tax is a mechanism for paying income tax in instalments throughout the year rather than as a single annual payment. It applies to anyone whose residual income tax (the tax owed after PAYE and other credits) exceeded $5,000 in the prior year. This commonly includes self-employed people, contractors, landlords with rental income, investors with dividend or interest income, and anyone who earns income that is not taxed at source through PAYE.
The key concept is residual income tax (RIT). Your RIT is your total income tax liability for the year minus any PAYE that was deducted by your employer and any other tax credits you can apply. If you earn a salary with PAYE deducted and also have $30,000 of rental profit, your PAYE from salary covers most of your income tax, and your RIT is only the tax on the rental income. If that RIT is under $5,000, you are in the safe harbour and do not need to pay provisional tax.
The standard uplift method is the simplest and most commonly used approach. You pay 105% of your prior year's RIT (or 110% if you use a registered tax agent) in three equal instalments. The key benefit is certainty: if you pay on time using the standard uplift amount, you are fully protected from use-of-money interest regardless of how much your actual tax liability turns out to be. The downside is that if your income has dropped significantly from the prior year, you may be overpaying throughout the year and only get the excess back as a refund when you file your return.
The 110% rate for tax agent clients reflects the extended filing deadlines available to them and the more conservative approach required by IRD for professionally-managed accounts.
The estimation method lets you base your provisional tax on your best estimate of the current year's income. This is advantageous when your income is materially lower than the prior year, because it reduces your instalment amounts to match your actual expected tax. The risk is that if your estimate is too low and your actual RIT ends up more than 5% above what you paid, IRD charges use-of-money interest from the date each instalment was due. This interest is currently charged at a rate set by IRD each year.
Accurate estimation requires forecasting your full-year income relatively early in the tax year. For people with variable income (project-based contractors, commission earners, property investors with variable occupancy), this can be genuinely difficult. The estimation method is most useful when your income has clearly dropped, for example after leaving employment to contract part-time, or when a property has been sold and rental income has reduced.
The AIM method is designed for businesses using compatible accounting software such as Xero, MYOB, or Reckon. Instead of three annual instalments, provisional tax is paid at the same time as each GST return, based on actual year-to-date income as reported by the accounting system. This means your provisional tax tracks your actual profitability in near real time, eliminating both overpayment and UOMI risk. There is no use-of-money interest under AIM if the software calculations are used correctly.
AIM is best suited to businesses with regular accounting records and GST filings. Sole traders or individuals without organised bookkeeping typically find AIM impractical. IRD's guidance on AIM eligibility and compatible software is available at ird.govt.nz.
If your prior year's residual income tax was $5,000 or less, you are in the safe harbour. This means you do not have to pay provisional tax through the year at all. You simply pay your full tax liability as terminal tax by the due date after the tax year ends (typically 7 February, or 7 April if you have a tax agent). Even if your current year tax turns out to be large, no use-of-money interest applies as long as you pay the terminal tax on time.
The $5,000 safe harbour threshold is based on the most recently filed return's RIT. If you filed no return last year or the return is not yet processed, IRD may estimate your RIT. If you believe you will be in the safe harbour but receive a provisional tax bill from IRD, check with your accountant whether there has been an unexpected uplift in their system.
Use-of-money interest (UOMI) is the penalty interest IRD charges when provisional tax is underpaid. It runs from the date the underpaid instalment was due until the liability is settled. The IRD debit interest rate (charged on underpayments) is reviewed periodically and published on the IRD website. As of 2024 the rate was approximately 10.39% per annum, though this changes with market interest rates.
UOMI is not a fine or penalty. It is simply the cost of effectively borrowing money from IRD. The standard uplift method is UOMI-safe: if you pay the correct standard uplift amount on time, IRD cannot charge use-of-money interest even if your actual tax is higher. The estimation method carries UOMI risk if your estimate is too low. The AIM method eliminates UOMI risk entirely if used correctly.
If you are using the estimation method and discover mid-year that your income has been higher than estimated, you can revise your estimate upward and pay a top-up instalment. This limits the UOMI exposure to the period before the revision.
For individuals and businesses with a 31 March balance date, provisional tax is due in three instalments. The first instalment falls in late August (28 August), approximately five months into the tax year. The second falls in mid-January (15 January), about two and a half months before year end. The third falls in early May (7 May), about five weeks after the tax year closes.
Terminal tax, the final payment settling any remaining tax liability after provisional tax instalments, is due on 7 February of the year following the tax year end, or 7 April if a tax agent is used. If you are in the safe harbour, your full tax liability is due as terminal tax by this date.
Check your most recent income tax assessment from IRD. If the residual income tax (the amount you owed after all credits) was more than $5,000, you are required to pay provisional tax in the following year. If your RIT was $5,000 or less, you are in the safe harbour and only need to pay terminal tax after the year ends.
Missing a provisional tax instalment triggers use-of-money interest on the unpaid amount from the due date. If you are using the standard uplift method, you lose the UOMI protection for that instalment. IRD may also apply late payment penalties. Pay as soon as possible if you miss a due date to limit the interest accumulation.
Yes. If you use the estimation method, you can base your provisional tax on a lower income estimate. If you are partway through the year using standard uplift and your income has dropped significantly, you can switch to the estimation method and pay lower amounts for the remaining instalments. Keep records of your income to support the estimate in case IRD enquires.
Yes. Provisional tax is an income tax prepayment on your net income (revenue minus expenses). GST is a consumption tax on revenue and has nothing to do with provisional tax, except that under the AIM method, provisional tax payments are aligned with GST return dates for administrative convenience.
Your residual income tax is shown on your income tax assessment (called a tax assessment notice) from IRD. You can find it in your myIR account at ird.govt.nz. Look for the field labelled RIT or residual income tax. This is the figure you need for the standard uplift calculation.
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