IR4 Question 34 2021 provisional tax

The 2021 provisional tax is charged for income the company will earn in the 2021 income year. It is payable in two, three or six instalments. There are three options for calculating your provisional tax—standard, estimation and ratio.

If the company’s 2020 RIT is:

$2,500 or less it does not have to pay provisional tax, but it can make voluntary payments
more than $2,500 but expected to be $2,500 or less for 2021 it may estimate 2021 provisional tax at nil
more than $2,500 and expected to be more than $2,500 for 2021 it must pay 2021 provisional tax using one of the payment options.

Standard option (S)

Under this option, your 2021 provisional tax is your 2020 RIT (where it is more than $2,500) plus 5%.

If you think your income for 2021 will be more than your 2020 income, you can make voluntary payments over and above the amount you have to pay under the standard option.

Estimation option (E)

Companies can estimate their 2021 provisional tax. They can re-estimate any number of times up to and including their final instalment due date. If the company’s 2021 bRIT is expected to be less than its 2020 RIT, estimating may prevent the company from paying more than it has to.

An estimate must be fair and reasonable at each instalment it applies to. If you use the estimation option, see Nottakingreasonablecarepenalty and Interest.

If the company estimates its provisional tax, write E in Box 34A and the amount of 20210 provisional tax in Box 34B.

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 34A this will mean you are electing to stop using the ratio option.

Ratio option (R)

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

Only enter R at Box 34A if you have 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.

If you’ve already elected to use the ratio option and want to continue using it, enter R at Box 34A.

There is more information about the ratio option in the guide Provisional tax (IR289).

Not taking reasonable care penalty

When you estimate the company’s 2021 provisional tax, your estimate must be fair and reasonable. If the 2021 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 company has paid too much provisional tax, Inland Revenue may pay interest. If it has not paid enough provisional tax, Inland Revenue may charge interest.

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

Election to be a provisional tax payer

A company is a provisional tax payer for the 2020 year if its RIT for that year is more than $2,500. If the 2020 RIT is $2,500 or less but the company paid provisional tax for the year, the company may elect to be a provisional tax payer for that year. This may affect the interest the company may be entitled to for that year.

To elect to be a provisional tax payer for the 2020 year, attach a note to the front of the 2020 return.

Change in balance date

There are special rules about when provisional tax is due and how interest is calculated if there has been a change in the balance date.

For more information, read the guides Penalties and interest (IR240) and Provisional tax (IR289).

Tax pooling

Tax pooling allows taxpayers to pool provisional tax payments, offsetting underpayments by overpayments within the same pool. This reduces their possible exposure to late payment penalties and interest. For more information about tax pooling, including a list of intermediaries, go to ird.govt.nz/tax-pooling.

Payment dates

2021 provisional tax

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

First instalment	28 August 2020
Second instalment	15 January 2021
Third instalment	7 May 2021

A company with a balance date other than 31 March generally pays provisional tax on the 28th day of the 5th, 9th and 13th months after the balance date.

There are two exceptions:

If it would be due on 28 December it is due on 15 January.
If it would be due on 28 April it is due on 7 May.

These dates will alter if the company 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, read the guide Provisional tax (IR289).

2020 end-of-year income tax

Companies that have an agent and an extension of time may have until 7 April 2021 to pay their tax. If you think this applies to your company, contact your agent.

A company with a balance date between 1 March and 30 September must pay its end-of-year income tax (Box 29L) and any interest by 7 February 2021.

A company with a balance date between 1 October and 28 February must pay its end-of-year income tax by the 7th day of the month before the following year’s balance date.

How to make payments

You can make payments:

electronically
by credit or debit card.

Inland Revenue recommends 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
direct credit.

When making electronic payments, include:

your IRD number
an account type code
the period the payment relates to.

Go to ird.govt.nz/pay for full details of our 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.

Call Inland Revenue if you can’t pay your tax by the due date. Inland Revenue will look at your payment options, which may include an instalment arrangement, depending on your circumstances.

Go to ird.govt.nz/penalties for more information.