SBA

Provisional tax is not a separate tax but a way of paying your income tax as the income is received through the year. You pay instalments of income tax during the year, based on what you expect your tax bill to be. The amount of provisional tax you pay is then deducted from your tax bill at the end of the year. If you had income tax of more than $2,500 to pay at the end of any tax year you may have to pay provisional tax for the following year.

There are three options for paying your provisional tax, they are:

• Standard Option
• Estimation Option
• Ratio Option

Standard Option

Due to the change in tax rates the standard calculation for this is different over 2012 and 2013, gradually returning to normal by the 2014 income year. To calculate your provisional tax for 2014 and beyond, add 5% to the previous tax year’s residual income tax, or 10% to the residual income tax from two years previous.

For 2012/2013 income years to calculate your provisional tax you use the previous years RIT less 5%.

Ratio option

You pay provisional tax based on your GST taxable supplies for each two-month period. You’ll make six provisional tax payments of differing amounts depending on your taxable supplies during each two-month period.

The Inland Revenue Department calculate your ratio percentage and you multiply this by your previous two months GST taxable supplies to get the amount of provisional tax you need to pay.

Estimation option

You can estimate your provisional tax due for the current year, if you use this optition, you must continue to use this option until the end of the current financial year. If you underestimate you are liable for Use Of Money Interest.