Provisional tax is not a separate tax but a way of paying your
income tax as the income is received through the year. Instalments
of income tax are paid 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 your residual income tax is $2,500 or more you will have to
pay provisional tax for the following year. Residual income tax is
the tax payable after subtracting any rebates you are eligible for
and any tax credits (excluding provisional tax). Residual income tax
is clearly labelled in the tax calculation in your tax return.
There are two options for working out your provisional tax:
standard and estimation.
Standard Option
The IRD automatically charges provisional tax using the standard
option unless you choose the estimation option. Under this option:
-
Your provisional tax payable is your
previous year's residual income tax plus 5%.
-
Change in the tax rates may have an
effect on the calculation of your provisional tax.
-
If your income is over $60,000 for
the 2001 and 2002 year, there are special rules for calculating
your provisional tax.
Estimation Option
The other way to work out your provisional tax is to estimate what
your residual income tax will be. When working out the tax, keep the
following points in mind.
-
You can estimate your provisional
tax as many times as necessary up until your last instalment
date. Each estimate must be fair and reasonable.
-
Using the estimation option, if your
estimated residual income tax is lower than your actual residual
income tax for that year, you may be liable for interest on the
underpaid amount.
-
To get the right tax rate
- add up all your estimated income
- work out the tax on the total
- then subtract any tax credits (like PAYE)
Due Dates
If you have a 31 March balance date, provisional tax payments are
due on:
First instalment
7 July
Second instalment 7
November
Third instalment
7 March
Interest
In some circumstances you may be charged interest if the provisional
tax you paid is less than your residual income tax. If the
provisional tax you pay is more than your residual income tax, the
IRD may pay you interest on the difference.
|
