What is provisional tax?

Provisional tax is income tax paid in instalments during the year. You will generally need to pay it when the residual income tax from your previous return was more than $5,000. Your first year in business is not tax free, and you may choose to make voluntary payments before provisional tax becomes compulsory.

Under the standard option, the calculation may use the previous year's residual income tax plus 5%, or the residual income tax from two years earlier plus 10%. Which uplift applies depends on filing timing and any extension of time.

A taxpayer with a 31 March balance date usually has instalments due on 28 August, 15 January, and 7 May. Six-monthly GST filers using the standard option generally have two instalments. Other balance dates and payment methods have different schedules.

Terminal tax is the final balance after the return is filed. Interest may apply if the right amount was not paid at the required time.

Check the provisional tax method, balance date, GST filing frequency, and current Inland Revenue dates before setting a payment plan. Ask the Afirmo tax team to review the calculation if income changes sharply or the position is uncertain.