Provisional tax in New Zealand: How it works and how to calculate it
Plain-English guide to provisional tax in New Zealand: Who pays, how it's worked out and when it's due.
Written by Naomi Lai— Small business & finance writer. Read Naomi's full bio
Published Saturday 3 October 2026
Table of contents
Key takeaways
- Provisional tax lets you pay next year's income tax in instalments through the year rather than in one lump sum.
- You pay it if your residual income tax was more than $5,000 in the last tax year.
- You can choose from four options (standard, estimation, ratio, and AIM) so payments match how your income flows.
- Missing or underpaying an instalment can trigger interest from Inland Revenue, so it pays to plan your cash flow ahead.
What is provisional tax in New Zealand?
Provisional tax in New Zealand is income tax you pay in advance during the year, in instalments, based on the profit you expect to earn. It isn't a separate tax.It's a pay-as-you-go way of settling your income tax bill so you're not hit with the full amount at year-end.
Think of it as paying this year's tax before your final figures are in. When you file your return, the Inland Revenue Department (IRD) works out your actual tax and compares it with what you've already paid. Any shortfall is called terminal tax, and any overpayment can come back to you as a refund.
Who has to pay provisional tax?
You have to pay provisional tax if your residual income tax (RIT) was more than $5,000 in the previous tax year. RIT is the income tax you owe after any tax already deducted at source has been taken off.
Provisional tax tends to catch people who earn income that isn't taxed as it's paid. That commonly includes:
- sole traders and tradespeople invoicing their own work
- freelancers and consultants paid by clients
- contractors earning schedular payments
- landlords and investors with rental or investment income
If last year's RIT was $5,000 or less, you make a single terminal tax payment instead. New businesses often fall under the threshold in year one, then move into provisional tax the following year once profits grow. You can also choose to pay voluntarily to spread the cost. For a plain-English overview of your obligations, this Ministry of Business, Innovation, and Employment guide to income tax and provisional tax is a helpful starting point.
How is provisional tax calculated?
Most people use the standard option, which takes last year's RIT and adds a small uplift. If you've filed your last return, you pay 105% of that RIT. If you haven't filed it yet, you pay 110% of the RIT from the year before that.
You then split the total into three equal instalments across the year. Here's a worked example for a freelancer with a 31 March balance date whose RIT last year was $9,000.
1. Start with last year's RIT
Your residual income tax for the last completed year was $9,000. This is the figure the standard option builds on.
2. Add the 5% uplift
Because you've filed that return, multiply your RIT by 105%. So $9,000 times 1.05 gives you $9,450 of provisional tax for the year.
3. Split the total into three instalments
Divide $9,450 by three. That's $3,150 due at each of the three instalment dates through the year. If you'd rather check the numbers against your own records, the provisional tax guidance from Inland Revenue walks through each option in detail.
The 4 provisional tax options explained
You can pick the method that best fits how your income behaves through the year. There are four options, and each one suits a different situation:
- Standard: applies an uplift to last year's RIT and is the default for most people
- Estimation: lets you estimate your own current-year RIT, which helps if your income is dropping
- Ratio: bases payments on a percentage of your GST-taxable supplies, so it suits fluctuating income if you're GST-registered
- AIM: uses the accounting income method, paying tax from your real-time cash flow through approved accounting software
The accounting income method is worth a closer look if your income is new or unpredictable. Instead of guessing based on last year, AIM works out what you owe from the actual figures in your software as you go, so you only pay tax on profit you've genuinely made.
When is provisional tax due?
If you have a standard 31 March balance date and file GST two-monthly or not at all, your three provisional tax instalments are due on 28 August, 15 January, and 7 May. These are the dates most sole traders and freelancers work to.
Your dates can shift in a couple of situations. If you file GST six-monthly, you pay provisional tax in two instalments rather than three. And if your business uses a balance date other than 31 March, your instalment months move to line up with your own tax year.
How to pay your provisional tax
Paying is straightforward once you know each instalment amount and date. Follow these steps to stay on top of every payment.
- Log in to myIR. Sign in to your myIR account to see your provisional tax due and the date each instalment needs to be paid.
- Choose how to pay. Pay directly in myIR, set up a payment through your online banking, or use another Inland Revenue-approved method that works for you.
- Pay on or before each date. Make each payment by its due date so your account stays current and you keep clear of any interest charges.
Safe harbour and use of money interest
Safe harbour protects smaller taxpayers who pay their standard provisional tax amounts on time. If that's you, Inland Revenue won't charge interim interest during the year, even if your final tax turns out higher than you paid.
Use of money interest (UOMI) is what applies when you underpay. If your RIT is $60,000 or more, Inland Revenue charges interest from the day after your final instalment date on any amount still owing, and it can pay you interest if you've overpaid. Interest rates change from time to time, so check the current rate before you rely on a figure.
Reduce or avoid a provisional tax surprise
The best way to avoid a shock is to treat provisional tax as money you've already set aside, not money you still have. A few simple habits keep it manageable and stop instalments creeping up on you.
- Set money aside. Move a percentage of every payment you receive into a separate savings account.
- Keep records current. Track income and expenses so you always know where you stand.
- Switch to estimation. Move to the estimation option if your income drops, so you're not overpaying on last year's figures.
- Track profit in real time. Let your accounting software work out each instalment from what you've actually earned.
Staying on top of your cash flow position through the year makes these habits far easier, and you don't need to be an accountant to keep it tidy.
Simplify provisional tax with Xero
FAQs on provisional tax in New Zealand
Here are quick answers to the questions people most often ask about provisional tax.
Who needs to pay provisional tax?
You need to pay if your residual income tax was more than $5,000 in the previous tax year. This typically applies to sole traders, contractors, freelancers, and landlords with untaxed income.
How can you avoid provisional tax in New Zealand?
You can't opt out if you're over the threshold, but keeping your RIT at $5,000 or below means you pay terminal tax once instead. Setting money aside each month keeps instalments from stinging.
What is an example of provisional tax?
If your RIT last year was $15,000 and you use the standard option, you'd pay 105%, so $15,750 spread across three instalments of $5,250 each.
Can you get provisional tax back?
Yes. If you've paid more provisional tax than your final return shows you owe, Inland Revenue refunds the difference after you file.
Is there a provisional tax threshold in New Zealand?
Yes. The threshold is $5,000 of residual income tax, so you move into provisional tax for the next year once your RIT passes that figure.
Get one month free
Purchase any Xero plan, and we will give you the first month free.