IR8 Question 12 Provisional tax 2020

2020 provisional tax is charged for income the authority will earn in the 2020 income year. It’s generally payable in two, three or six instalments. There are three options for calculating provisional tax—standard, estimation and ratio.

If the Maori authority’s 2019 RIT is:

$2,500 or less it doesn’t have to pay provisional tax, but it can make voluntary payments.
$2,500 or less it doesn’t have to pay provisional tax, but expected to be $2,500 or less for 2020, it may estimate 2020 provisional tax at nil
more than $2,500 and expected to be more than $2,500 for 2020, it must pay 2020 provisional tax using one of the payment options.

Standard option

If you use this option, write S in Box 12 of the return and the amount of 2019 provisional tax in Box 12A. 2019 provisional tax is the 2018 RIT plus 5%.

If the authority’s 2019 return hasn’t been filed by the first instalment of 2020 provisional tax, the provisional tax is the 2018 RIT plus 10%.

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

Estimation option

Maori authorities can estimate their 2020 provisional tax. They can re-estimate any number of times up to and including their third instalment due date. If the authority’s 2020 RIT is expected to be less than the 2019 tax, estimating may prevent the authority from paying more than it has to.

An estimate must be “fair and reasonable” at each instalment it applies to. Read the notes on the next page about the not taking reasonable care penalty if you use the estimation option.

If the authority estimates its provisional tax, write “E” in Box 12 and the amount of 2020 provisional tax in Box 12A.

If you estimate your provisional tax your instalments should be one-third of your estimation.

If you’re using the ratio option and select E at Box 12 this will mean that you’re electing to stop using the ratio option.

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 12 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 wish to use it in.

If you’ve already elected to use the ratio option and want to continue using it, enter R at Box 12.

More information about the ratio option is available in our Provisional tax (IR289) guide.

GST ratio method for 2019-2020 year

Your ratio percentage is calculated by dividing your 2019 RIT by your total GST taxable supplies for the same year.

Not taking reasonable care penalty

When you estimate the authority’s 2020 provisional tax, your estimate must be fair and reasonable. If the 2020 RIT is greater than the provisional tax paid, you may be liable for a not taking reasonable care penalty of 20% of the underpaid provisional tax.

Interest

If the authority has paid too much provisional tax, Inland Revenue may pay interest, or if it has not paid enough provisional tax, Inland Revenue may charge interest.

Interest the authority pays is tax deductible, while interest Inland Revenue pay is taxable income.

Payment dates

2019 Provisional tax

Generally, an authority with a 31 March balance date pays provisional tax by the following due dates:

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

If the balance date is other than 31 March the authority pays provisional tax on the 28th day of the 5th, 9th and 13th months after the balance date.

There are two exceptions:

if tax would be due on 28 December it’s due on 15 January
if it would be due on 28 April it’s due on 7 May.

These dates will alter if the authority is registered for GST and:

the GST filing frequency is six-monthly, or
provisional tax is paid through the ratio option.

If either of these situations apply to you, please read our Provisional tax (IR289) guide.

How to make payments

You can make payments:

electronically
by credit or debit car
by posting a cheque

We recommend making electronic payments because it’s the most accurate and reliable method. These electronic options are available through your bank:

online banking
automatic payment
direct credit.

When making electronic payments, include:

your IRD number
a tax type code
the period the payment relates to.

Go to www.ird.govt.nz/pay for full details of the payment options.

Late payment

Inland Revenue may charge you a late payment penalty if you miss a payment or it’s late. They will also charge you interest if you don’t make your tax payment by the due date.

If you can’t pay your tax by the due date, call Inland Revenue on 0800 775 247. They will look at your payment options, which may include an instalment arrangement, depending on your circumstances.

Go to www.ird.govt.nz (search keywords: managing penalties) for more information.

Arrangements

If you’re unable to pay your tax by the due date, please call Inland Revenue. They will look at your payment options, which may include an instalment arrangement, depending on your circumstances. Arrangements can be agreed on, before or after the due date for payment. There are greater reductions in the penalties charged if the arrangement is made before the due date. You can send Inland Revenue an instalment arrangement proposal online. Go to www.ird.govt.nz (keyword: arrangement).

For more help see our Penalties and interest (IR240) guide.

Amounts of $100 or less

Interest and late payment penalties aren’t charged on outstanding amounts of $100 or less. Any unpaid tax of more than $100 (including any late payment penalties) will have interest added to it. Generally, payments the authority make will first be credited against any interest due. If the authority overpays its tax by more than $100, Inland Revenue may pay interest.