What is provisional tax?
Provisional tax is income tax paid in instalments during the year rather than as one lump sum after it. It’s designed to spread the load. Inland Revenue says you pay provisional tax if you had to pay more than $5,000 tax at the end of the year on your last return — that’s your residual income tax (RIT).
For seasonal businesses, the tricky part isn’t the amount. It’s that instalment dates are fixed, and they don’t move to suit your season.
The four options
IRD offers four ways to work out provisional tax:
- Standard option. Based on last year’s RIT plus an uplift.
- Estimation option. You estimate this year’s RIT yourself.
- Ratio option. Linked to your GST turnover (available to some GST-registered businesses).
- Accounting income method (AIM). Payments are calculated from your actual results during the year using approved accounting software.
Due dates for a 31 March balance date
From IRD’s payment dates for provisional tax:
| Option | Instalment dates |
|---|---|
| Standard or estimation | 28 August, 15 January, 7 May |
| Ratio | 28 June, 28 August, 28 October, 15 January, 28 February, 7 May |
| AIM — monthly GST filers | Monthly, aligned with GST due dates |
| AIM — two- or six-monthly GST filers, or not registered | 28 June, 28 August, 28 October, 15 January, 28 February, 7 May |
If your balance date is different, log in to myIR to see your dates.
How the standard option is calculated
Under the standard option, if your last return was filed on time, your provisional tax is last year’s RIT plus 5%, split across the three instalments. If last year’s return isn’t filed yet, the first instalments may be based on the RIT from two years ago plus 10%.
That’s simple, but notice what it means for a seasonal business: the amount is based on history, not on how this season is actually going.
The $60,000 safe harbour
IRD’s rules on interest on provisional tax include a safe harbour. Under the standard option, if your RIT is under $60,000 and you pay the instalments in full and on time, use of money interest generally won’t apply until after your end-of-year tax due date. Above $60,000, interest can apply from the day after the final instalment date, provided earlier instalments were paid in full and on time.
The estimation option is different: interest can apply even if you paid your estimate on time, if the estimate turns out to be too low.
Where seasonal businesses get caught
Map the instalment dates against your year:
- Ski and alpine tourism (Queenstown, Wānaka, Ruapehu): the 7 May instalment lands before the winter season starts; 28 August falls mid-season, which is usually fine.
- Summer tourism (Bay of Islands, Coromandel, Abel Tasman): 28 August is deep in the off-season; 15 January is peak.
- Kiwifruit and apples: harvest income may still be arriving in stages when instalments fall due.
- Retail: 15 January usually follows Christmas trade; 28 August may come before spring sales.
A business whose instalments land in quiet months has three choices: save ahead, change option, or arrange funding to bridge the gap.
Tactics that help
1. Set aside tax as you earn
Transfer a fixed share of every deposit into a separate tax account. When 28 August arrives in your off-season, the money is already there.
2. Consider AIM if income is uneven
AIM calculates payments from actual results as the year unfolds. For a business with a big peak and long quiet stretches, that can line payments up more closely with income. It requires compatible accounting software; your accountant can tell you whether it fits.
3. Use the estimation option carefully
If you’re confident this year will be lower than last — a poor season, a lost contract — estimating can reduce instalments. But estimate honestly; underestimating can mean interest and penalties.
4. Look at tax pooling
Tax pooling is an IRD-approved arrangement, run through commercial intermediaries, that can give businesses more flexibility on the timing of provisional tax payments. Ask your accountant whether it would suit you.
5. Talk to IRD early
If you can’t pay an instalment, contacting IRD before the due date gives you more options than after it. IRD can consider instalment arrangements for tax you can’t pay in full.
Where funding fits
Provisional tax is a timing problem, and timing problems are what working capital facilities are for:
- A line of credit can pay an instalment on the due date and be repaid when your season starts. It’s generally for businesses trading six months or more.
- If tax has already built up, a property-secured loan of $20,000 to $1m can pay out or refinance IRD debt, secured on New Zealand property you or a supporting party own.
Our page on paying IRD on time from a facility explains both routes.
This guide is general information. Your accountant can advise on the right provisional tax option for your business.