Provisional tax in NZ is how Inland Revenue collects your income tax in installments during the year rather than in one lump sum after your return is filed. You’re required to pay it if your residual income tax (RIT) from the previous year came to more than $5,000.1Inland Revenue. Provisional tax It isn’t a separate tax or a surcharge. It’s the same income tax you’d owe anyway, just paid in advance.
Who Has to Pay It
The trigger is your residual income tax, meaning what you still owe after subtracting tax already collected during the year through PAYE, resident withholding tax on interest, and similar credits. If that RIT figure from your last return exceeded $5,000, you become a provisional taxpayer for the current year.1Inland Revenue. Provisional tax The rule catches sole traders, companies, trusts, and anyone else whose tax isn’t fully covered at source.
Earning a high income on its own doesn’t put you in the system. A salaried employee with a small rental property may never cross the threshold if PAYE covers most of their liability. What matters is the gap between what was withheld and what you actually owe. Some situations tip people in unexpectedly: lump sum payments where too little tax was deducted, employee share scheme income, or property sales caught by the bright-line rule.
If you earn through a partnership or a look-through company, the profits flow through to you personally.2Inland Revenue. Look-through companies Your share is added to your own income when working out RIT, so you can become a provisional taxpayer as an individual even when the entity itself owes nothing.
You can also opt in voluntarily. If you’re not required to pay but expect your RIT this year to exceed $5,000, choosing to pay in installments avoids a single bill after assessment.1Inland Revenue. Provisional tax
When Payments Are Due
If you have the standard 31 March balance date and use the standard, estimation, or ratio calculation method, provisional tax falls due in three installments:3Inland Revenue. Payment dates for provisional tax
- 28 August
- 15 January
- 7 May
A different balance date shifts these accordingly. Your specific dates appear in your income tax account in myIR.
GST-registered businesses can align provisional tax with their GST filing cycle. Monthly GST filers can spread payments across up to 12 smaller installments instead of three larger ones.3Inland Revenue. Payment dates for provisional tax AIM users don’t need to track dates manually; the software works them out based on your balance date and GST cycle.
How the Amount Is Calculated
Inland Revenue offers four methods for setting your installment amounts.1Inland Revenue. Provisional tax The right one depends on how predictable your income is and whether you’re registered for GST.
Standard Option
This is the default. Inland Revenue takes last year’s RIT, adds 5%, and divides the total across the three installments. The uplift is a rough allowance for income growth. If you have an extension of time and your previous return isn’t filed by the first due date, the calculation reverts to the RIT from two years ago plus 10% until the more recent return is lodged.4Inland Revenue. Standard option The standard option suits businesses with steady income. If earnings drop, you can end up significantly overpaid and waiting for a refund after assessment.
Estimation Option
Estimation lets you forecast your own RIT for the year and pay based on that figure, which avoids the automatic 5% uplift. It helps when you know income will be lower than last year. The risk: if you underestimate, use-of-money interest runs from each installment date on the shortfall, and you lose the safe harbour protection described below.5Inland Revenue. Interest on provisional tax You can switch from standard to estimation at any point during the year.4Inland Revenue. Standard option
Ratio Option
The ratio option is for GST-registered businesses and ties each installment to your GST taxable supplies for the period, multiplied by a ratio Inland Revenue supplies based on your tax history.6Inland Revenue. Ratio option Payments rise and fall with actual revenue. There are turnover criteria, and you can’t switch to it mid-year if you began on a different method. Its biggest attraction: pay on time and Inland Revenue charges no use-of-money interest on your provisional tax.5Inland Revenue. Interest on provisional tax
Accounting Income Method (AIM)
AIM uses approved accounting software to calculate provisional tax from your actual profit in each period and file a statement of activity with Inland Revenue for you. It’s available to individuals and companies with annual turnover under $5 million.7Inland Revenue. Accounting income method (AIM) In periods where you’re at a loss, nothing is due, so seasonal and new businesses often find it a good fit.
Interest, Safe Harbour, and Late Penalties
When your installments don’t match your final liability, Inland Revenue charges or pays use-of-money interest (UOMI) on the difference. As of January 2026, the underpayment rate is 8.97% and the overpayment rate is 2.25%.8Inland Revenue. Use of money interest (UOMI) rate change – January 2026 Underpaying costs roughly four times more than overpaying earns back. No interest is charged or paid where the difference is $100 or less.5Inland Revenue. Interest on provisional tax
Safe harbour rules soften this for standard-option taxpayers. If your RIT ends up under $60,000, interest is only charged or paid from the day after your terminal tax due date, not from each installment date. If your RIT is $60,000 or more, interest runs from the day after the final installment provided the earlier ones were paid in full and on time. Estimators get no safe harbour: UOMI runs from each installment date where the payment fell short of the eventual liability.5Inland Revenue. Interest on provisional tax
Missing a payment date brings penalties on top of interest. A 1% penalty applies the day after the due date, and a further 4% is added on the unpaid balance (including the first penalty) after seven days.9Inland Revenue. Late payment penalties Combined with UOMI, falling behind gets expensive quickly.
Ways to Soften the Bill
Tax Pooling
Tax pooling is a New Zealand system that can cut your UOMI exposure. Registered intermediaries collect funds from taxpayers and deposit them in a pool held with Inland Revenue.10Inland Revenue. How tax pooling works When money is later transferred from the pool to your account, Inland Revenue treats it as paid on the original pool date, not the transfer date. That means you can buy funds after year-end to cover a shortfall and have the payment backdated, reducing or eliminating interest that would otherwise apply. Intermediaries often lend at rates below the 8.97% UOMI charge as well. Inland Revenue lists five registered intermediaries, including Tax Traders, TMNZ, and PwC Tax Pooling Solutions.11Inland Revenue. Tax pooling intermediaries Until an intermediary actually transfers funds to your account, your obligation isn’t officially satisfied and you may still receive Inland Revenue reminders.
Early Payment Discount for New Businesses
Newly self-employed people and new partners often face last year’s terminal tax and this year’s first provisional installment around the same time. If you qualify, Inland Revenue gives a 6.7% early payment discount for voluntary tax payments made before you’re required to become a provisional taxpayer.12Inland Revenue Tax Technical. Early payment income tax discount You must be self-employed or a partner, earn most of your income from that business rather than from investments, not be required to pay provisional tax that year, make the voluntary payment before year-end, and not have been liable for provisional tax in any of the previous four years. The discount is 6.7% of either the amount paid or 105% of end-of-year RIT, whichever is lower.
Paying and Terminal Tax
Payments can be made through internet banking (select Inland Revenue as payee and use tax type INC for income tax), through myIR by direct credit or card, or by Visa or Mastercard, which carries a bank convenience fee of 1.42%.13Inland Revenue. Pay using a debit or credit card Check the tax type and period every time; payments applied to the wrong period won’t count toward the current installment and can trigger penalties while you fix it.
After year-end, Inland Revenue assesses your actual liability and credits everything you paid in provisional tax during the year. Whatever is left is your terminal tax, generally due 7 February the following year for a 31 March balance date, or 7 April if you use a tax agent. Overpayments are refunded or offset against other tax. Underpayments must be settled by the terminal tax date, and depending on your calculation method and safe harbour status, UOMI may already be building on the shortfall.