IR3NR Question 30 Provisional tax

Provisional tax is generally payable because you earned income during the year that either:

wasn’t taxed, or
was taxed at the wrong rate.

Provisional tax is usually payable in three instalments during the year. For example, if your 2019 residual income tax (RIT) (Box 28H of your return) is more than $2,500, you’ll become a provisional tax payer and will be liable to pay 2020 provisional tax.

For more information on provisional tax see our Provisional tax guide (IR289).

Initial provisional tax liability

Special rules apply when interest may be charged for an initial provisional tax liability.

You will have an initial provisional tax liability if:

you begin to derive income from a taxable activity during the tax year, and
your RIT in any of the four preceding tax years didn’t exceed $2,500, and
your RIT for the current year is $60,000 or more.

If this applies to you, please read the guide Provisional tax (IR289).

The date you cease employment determines when interest will be charged from.

You are not liable to pay provisional tax in the year you have an initial provisional tax liability. You may make voluntary payments to reduce your interest liability.

Interest rules if you have an initial provisional tax liability

Special rules apply to when interest may be charged for an initial provisional tax liability. If this applies to you, please read the guide Provisional tax (IR 289).

Payment dates

Provisional tax is payable on the instalment dates that fall more than 30 days after the date you ceased employment. If you have to pay provisional tax, you must pay it in:

three equal instalments if you ceased employment more than 30 days before the first instalment date
two equal instalments if you ceased employment 30 days or less before the first instalment date and more than 30 days before the second instalment date, or
one instalment if you ceased employment 30 days or less before the second instalment date.

For the income year ending 31 March 2020, you’ll pay:

three equal instalments (28 August 2019, 15 January 2020 and 7 May 2020) if you ceased employment before 28 July 2019
two equal instalments (15 January 2020 and 7 May 2020) if you ceased employment between 29 July and 16 December 2019
one instalment (7 May 2020) if you ceased employment on or after 16 December 2019.

Standard provisional tax payment dates

If you have a standard balance date of 31 March your payment dates are usually:

First instalment	28 August 2019
Second instalment	15 January 2020
Third instalment	7 May 2020

Non-standard balance dates

If your balance dates differ from 31 March, your payment dates are the 28th of the month every 5th, 9th and 13th month following the balance date. For example, if your balance date is 30 June, your first provisional payment is due 28 November.

If you’re registered for GST and file your returns six-monthly, or you choose the ratio option, these payment dates will alter. If this describes your situation please read the guide Provisional tax (IR289).

Payment options

You have three options for paying provisional tax—the standard option (S), the estimation option (E) or the ratio option (R).

Standard option

Under this option, your 2020 provisional tax is the same as your 2019 RIT (where it is more than $2,500) plus 5%.

If your RIT is over $60,000 special interest rules apply to you—please read the guide Provisional tax (IR289).

If you’re filing your return after 28 August 2019 your instalment amounts may be different. Please read the guide Provisional tax (IR289).

Estimation option

Anyone can estimate their provisional tax. If you expect your 2020 RIT to be lower than your 2019 RIT, estimating will keep you from paying more than you have to.

Your estimate must be fair and reasonable at the time you make it, and at each instalment date. You can be charged a penalty and/or interest if you don’t take reasonable care when you estimate your provisional tax.

If you’ve chosen to pay your 2020 provisional tax using the standard option, you can still estimate your provisional tax any time up to and including your final instalment date. Once you’ve chosen the estimation option you can’t change back to the standard option in that income year. You can re-estimate any number of times up to and including your final instalment date. Your last estimate becomes final at this date.

If you’re filing your return after 28 August 2019, your instalment amounts may be different. Please read the guide Provisional tax (IR289).

Ratio option

If you’re GST registered you may qualify to use the ratio option to calculate your provisional tax.

Only enter “R” at Box 30A if you’ve already elected to use the ratio option. Your application to use the ratio option must be made by phone or in writing before the beginning of the income year you want to use it in.

If you’ve already elected to use the ratio option and want to continue using it enter “R” at Box 30A.

Read the guides Penalties and interest (IR240) and Provisional tax (IR289) for more information.