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Income Tax Act 2007

General collection rules - Provisional tax

RC 5: Methods for calculating provisional tax liability

You could also call this:

“Different ways to calculate how much provisional tax you need to pay”

When you need to pay provisional tax, you have different ways to work out how much to pay:

  1. Standard method: You pay 105% of last year’s residual income tax.

  2. Estimation method: You estimate your tax for the year.

  3. AIM method: You use approved accounting software to calculate your tax as you earn income.

  4. GST ratio method: If you’re eligible, you can use your GST to work out your provisional tax.

The amount you need to pay can change if:

  • Your tax return for last year isn’t due or filed yet
  • The Commissioner of Inland Revenue decides your amount
  • You’re a life insurer

If you use the AIM method, you need to meet certain rules about your business size, accounting software, and tax history.

The Commissioner can determine your provisional tax if needed, but must tell you at least 30 days before it’s due (with some exceptions).

Life insurers need to give the Commissioner details about how they calculated their provisional tax.

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View the original legislation for this page at https://legislation.govt.nz/act/public/1986/0120/latest/link.aspx?id=DLM1519810.

Topics:
Money and consumer rights > Taxes
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RC 4: Choosing to pay provisional tax, or

“How to opt into paying provisional tax when filing your first tax return”

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RC 6: Standard method, or

“How to calculate your provisional tax payments using your previous year's tax”

Part R General collection rules
Provisional tax

RC 5Methods for calculating provisional tax liability

  1. A person liable to pay provisional tax must calculate the amount payable for a tax year using 1 of the methods described in subsections (2) to (7).

  2. Under the standard method, the amount of provisional tax payable for the tax year is, for the purpose of determining the amount of any particular instalment of provisional tax payable under section RC 9, 105% of the person’s residual income tax for the preceding tax year, determined under section RC 6. Subsection (3) overrides this subsection.

  3. Despite subsection (2), the amount of provisional tax payable for the tax year is, for the purpose of determining the amount of any particular instalment of provisional tax payable under section RC 9, 110% of the person’s residual income tax for the tax year before the preceding tax year if—

  4. they are required to provide a return of income for the preceding tax year; and
    1. the return is not due on or before the relevant instalment date through the application of section 37 of the Tax Administration Act 1994, or an extension granted under that section; and
      1. they have not provided the return on or before the relevant instalment date; and
        1. the relevant instalment date is not the date of instalment F for the corresponding income year.

          1. For the purposes of subsection (3)(c), if the relevant instalment date falls on a day that is not a working day, a return for the preceding tax year provided on the first working day after that instalment date is deemed to have been provided on the instalment date.

          2. Subsections (5) to (7) override subsection (3). Sections RC 10(5), RZ 3 (Standard method: 2010–11 to 2012–13 income years) and RZ 5D (Standard method or GST method: transition for Maori authorities) modify subsections (2) and (3).

          3. An amount calculated under subsection (2) or (3) is truncated to whole dollars, for example $10.98 equals $10.

          4. The person may estimate their provisional tax liability for the tax year under section RC 7.

          5. A person must use the AIM method under section RC 7B to determine their provisional tax liability for the tax year (the current tax year), other than a transitional year, if the person—

          6. has chosen to either—
            1. use the AIM method for the current tax year on or before their first instalment date under the AIM method; or
              1. change part-year to use the AIM method for their remaining instalment dates under the AIM method for the current tax year, and they use either the standard method or GST ratio method at the beginning of the current tax year and, before changing to use the AIM method, they met all of their provisional tax obligations under the relevant method, from the beginning of the current tax year; and
              2. has an AIM-capable accounting system that is up-to-date for relevant tax law for the corresponding income year and for determinations under section 91AAX of the Tax Administration Act 1994 for the corresponding income year; and
                1. has—
                  1. annual gross income of $5,000,000 or less for the tax year before the current tax year:
                    1. annual gross income of $5,000,000 or less for the first tax year for which the person used the AIM method, and the Commissioner has approved under section 15Z of the Tax Administration Act 1994 the person’s continued use of an AIM-capable accounting system for tax years in which the person has annual gross income of more than $5,000,000:
                      1. a large business AIM-capable system; and
                      2. has not been liable, in 1 of the last 4 tax years before the current tax year, for a shortfall penalty in relation to their use of the AIM method and an approved AIM provider’s AIM-capable accounting system; and
                        1. has not returned tax liabilities using the AIM method with the sole purpose or effect of consistently, year-on-year, reducing their tax liabilities below the amounts of reasonably accurate assessments; and
                          1. is not a member of a class of taxpayers that the Commissioner has determined, under section 91AAY of the Tax Administration Act 1994, must not use the AIM method; and
                            1. for the current tax year, has not failed more than twice to give the Commissioner information in the prescribed form, as provided by section 45 of the Tax Administration Act 1994.

                              1. A person who does not meet the requirements of subsection (5B) can not use the AIM method for the current tax year. If they can not use the AIM method for the current year because part-way through the corresponding income year the person stops meeting the requirements of subsection (5B), the person is treated as using the estimation method for the whole of the current tax year.

                              2. A person who is eligible under section RC 16 and not excluded by section RC 17 may choose to use a goods and services tax (GST) ratio under section RC 8 to determine their provisional tax liability for the tax year.

                              3. If the Commissioner determines a person’s provisional tax liability under section 119 of the Tax Administration Act 1994, the amount or liability is that last determined by the Commissioner and notified to the person at least 30 days before the instalment date. The 30-day requirement does not apply in a case to which section 119(1)(d) of that Act applies (which relates to an estimate of residual income tax that is not fair and reasonable).

                              4. A person who carries on a business of providing life insurance and who is liable for income tax under the rules for life insurers, must at the time they determine their provisional tax liability provide the Commissioner with details of the calculation of that liability. In particular, they must detail the extent to which the amount of provisional tax relates to the policyholder base.

                              Compare
                              Notes
                              • Section RC 5(2): replaced (with effect on 1 October 2007), on , by section 102(1) (and see section 102(7) for application) of the Taxation (Annual Rates for 2022–23, Platform Economy, and Remedial Matters) Act 2023 (2023 No 5).
                              • Section RC 5(3): amended (with effect on 1 October 2007), on , by section 102(2) (and see section 102(7) for application) of the Taxation (Annual Rates for 2022–23, Platform Economy, and Remedial Matters) Act 2023 (2023 No 5).
                              • Section RC 5(3)(b): amended (with effect on 1 April 2017), on , by section 102(3) (and see section 102(8) for application) of the Taxation (Annual Rates for 2022–23, Platform Economy, and Remedial Matters) Act 2023 (2023 No 5).
                              • Section RC 5(3)(c): amended (with effect on 1 April 2017), on , by section 102(4) (and see section 102(8) for application) of the Taxation (Annual Rates for 2022–23, Platform Economy, and Remedial Matters) Act 2023 (2023 No 5).
                              • Section RC 5(3)(d): amended (with effect on 1 April 2017), on , by section 102(5) (and see section 102(8) for application) of the Taxation (Annual Rates for 2022–23, Platform Economy, and Remedial Matters) Act 2023 (2023 No 5).
                              • Section RC 5(3B) heading: inserted (with effect on 1 April 2017), on , by section 102(6) (and see section 102(8) for application) of the Taxation (Annual Rates for 2022–23, Platform Economy, and Remedial Matters) Act 2023 (2023 No 5).
                              • Section RC 5(3B): inserted (with effect on 1 April 2017), on , by section 102(6) (and see section 102(8) for application) of the Taxation (Annual Rates for 2022–23, Platform Economy, and Remedial Matters) Act 2023 (2023 No 5).
                              • Section RC 5(4): amended (with effect on 1 April 2019), on , by section 169(1) of the Taxation (KiwiSaver, Student Loans, and Remedial Matters) Act 2020 (2020 No 5).
                              • Section RC 5(4): amended (with effect on 1 October 2010), on , by section 121 of the Taxation (GST and Remedial Matters) Act 2010 (2010 No 130).
                              • Section RC 5(4): amended, on , by section 25 of the Taxation (Budget Measures) Act 2010 (2010 No 27).
                              • Section RC 5(4): amended, on , by section 39 of the Taxation (Personal Tax Cuts, Annual Rates, and Remedial Matters) Act 2008 (2008 No 36).
                              • Section RC 5(4B) heading: inserted (with effect on 1 April 2017), on , by section 169(2) (and see section 169(3) for application) of the Taxation (KiwiSaver, Student Loans, and Remedial Matters) Act 2020 (2020 No 5).
                              • Section RC 5(4B): inserted (with effect on 1 April 2017), on , by section 169(2) (and see section 169(3) for application) of the Taxation (KiwiSaver, Student Loans, and Remedial Matters) Act 2020 (2020 No 5).
                              • Section RC 5(5B) heading: inserted, on , by section 35(1) (and see section 35(3) for application) of the Taxation (Business Tax, Exchange of Information, and Remedial Matters) Act 2017 (2017 No 3).
                              • Section RC 5(5B): inserted, on , by section 35(1) (and see section 35(3) for application) of the Taxation (Business Tax, Exchange of Information, and Remedial Matters) Act 2017 (2017 No 3).
                              • Section RC 5(5B)(a): replaced, on , by section 248(1) (and see section 248(2) for application) of the Taxation (Annual Rates for 2018–19, Modernising Tax Administration, and Remedial Matters) Act 2019 (2019 No 5).
                              • Section RC 5(5C) heading: inserted, on , by section 35(1) (and see section 35(3) for application) of the Taxation (Business Tax, Exchange of Information, and Remedial Matters) Act 2017 (2017 No 3).
                              • Section RC 5(5C): inserted, on , by section 35(1) (and see section 35(3) for application) of the Taxation (Business Tax, Exchange of Information, and Remedial Matters) Act 2017 (2017 No 3).
                              • Section RC 5(8): amended (with effect on 2 November 2012), on , by section 129(1) of the Taxation (Annual Rates for 2020–21, Feasibility Expenditure, and Remedial Matters) Act 2021 (2021 No 8).
                              • Section RC 5 list of defined terms AIM-capable accounting system: inserted, on , by section 35(2) (and see section 35(3) for application) of the Taxation (Business Tax, Exchange of Information, and Remedial Matters) Act 2017 (2017 No 3)
                              • Section RC 5 list of defined terms annual gross income: inserted, on , by section 35(2) (and see section 35(3) for application) of the Taxation (Business Tax, Exchange of Information, and Remedial Matters) Act 2017 (2017 No 3)
                              • Section RC 5 list of defined terms large business AIM-capable system: inserted, on , by section 35(2) (and see section 35(3) for application) of the Taxation (Business Tax, Exchange of Information, and Remedial Matters) Act 2017 (2017 No 3)
                              • Section RC 5 list of defined terms life insurance rules: repealed (with effect on 2 November 2012), on , by section 129(2) of the Taxation (Annual Rates for 2020–21, Feasibility Expenditure, and Remedial Matters) Act 2021 (2021 No 8).
                              • Section RC 5 list of defined terms shortfall penalty: inserted, on , by section 35(2) (and see section 35(3) for application) of the Taxation (Business Tax, Exchange of Information, and Remedial Matters) Act 2017 (2017 No 3)
                              • Section RC 5 list of defined terms taxpayer: inserted, on , by section 35(2) (and see section 35(3) for application) of the Taxation (Business Tax, Exchange of Information, and Remedial Matters) Act 2017 (2017 No 3)
                              • Section RC 5 list of defined terms transitional year: inserted, on , by section 35(2) (and see section 35(3) for application) of the Taxation (Business Tax, Exchange of Information, and Remedial Matters) Act 2017 (2017 No 3)