Provisional Tax

If you are left with a tax bill of $2,500 or more for the year, you will need to pay provisional tax for the following year. This means that your tax will need to be paid in installments throughout the year, rather than in one lump sum at the end of the year.

There are many situations where you could have a tax bill of more than $2500:

  • you had PAYE or schedular income but used the wrong tax code

  • you received income with no tax deducted (or tax deducted at less than the required rate) from a trust

  • you had overseas income

  • you had untaxed business income

  • you received rental income

  • you received any other type of untaxed income (or income taxed at less than the correct rate)

If you use the standard method of calculation (see below), or the estimation method, payments are due at the following times:

  • 28 August

  • 15 January

  • 7 May

(This assumes you have a standard 31 March balance date.)

There are several ways to calculate provisional tax. The standard way is as follows:

  • last year's residual income tax plus 5%; or if last year's return hasn't been filed

  • residual income tax from two years ago plus 10%.

There are 3 other ways of calculating provisional tax:

  • AIM (the accounting income method) - a new method that is calculated via your accounting software. If you use this option, your due dates align with your GST due dates.

  • Estimation;

  • Ratio - calculated using a percentage ratio of your GST return. If you use this option, provisional tax is payable in 6 installments.

We can talk to you about the best method for you, and send you reminders when the payments are due.

TAXMaree BradleyPROVISIONAL TAX