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Income Tax Act 2007

General collection rules - Provisional tax

RC 7: Estimation method

You could also call this:

“How to estimate and pay your provisional tax”

When you need to pay provisional tax, you can use the estimation method to figure out how much to pay. Here’s how it works:

You can make a fair guess about how much tax you’ll owe for the year. You need to tell the tax office about your guess before each payment is due. The amount you guess is the amount of provisional tax you’ll pay for the year.

You can change your guess before each payment if you want to. If you do, the tax office will use your newest guess to work out your payments.

If you’ve made a special choice about using a loss from a certain year, you or your company can make or change your guess for that year until you file your tax return or when it’s due, whichever comes first.

You need to be careful when making your guess. If you think your first guess isn’t right anymore, you should change it. If you guess more than you end up owing, the tax office will think you were careful enough.

If you change how you work out your provisional tax partway through the year, you need to make a new guess. You’ll then pay provisional tax on the next payment dates that come more than 30 days after your last payment.

Remember, it’s important to make a fair guess and update it if things change during the year.

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View the original legislation for this page at https://legislation.govt.nz/act/public/1986/0120/latest/link.aspx?id=DLM1519814.

Topics:
Money and consumer rights > Taxes
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“How to calculate your provisional tax payments using your previous year's tax”

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“Calculating provisional tax using an approved accounting system”

Part R General collection rules
Provisional tax

RC 7Estimation method

  1. This section applies to a person who is liable to pay provisional tax under section RC 5(5) and to the calculation of the amount of their provisional tax payable for a tax year under the estimation method.

  2. On or before an instalment date, the person may make a fair and reasonable estimate of their residual income tax for the tax year by informing the Commissioner of the estimate. The amount of provisional tax payable for a tax year is the amount of the estimated residual income tax.

  3. On or before an instalment date, the person may choose to revise an estimate made under subsection (2). The amount last estimated is the amount taken into account under section RC 5(5).

  4. A person, including a person who otherwise does not use the estimation method in the tax year, who makes an election under section IZ 8 (Election to use net loss for 2019–20 or 2020–21 year as tax loss in preceding year), and a shareholder-employee of such a person, may make or revise an estimate made under subsection (2), for the tax year corresponding to the income year referred to in section IZ 8 as the taxable income year, before the earlier of the date on which the person files the return of income for the tax year and the date on which the return is due.

  5. A person who makes an estimate under subsection (2) must take reasonable care in making it, and must revise the estimate for the tax year if, at some time in the tax year, the amount estimated is no longer fair and reasonable.

  6. If a person’s estimate is more than the provisional tax that is payable for the tax year, they are treated as having taken reasonable care in making the estimate.

  7. If, under section RC 18(5), a person changes the way they determine the amount of provisional tax after the date of an instalment, they must estimate their residual income tax for their corresponding income year, and must pay provisional tax on whichever of the following instalment dates for the income year occur after 30 days from their last ratio instalment date:

  8. C and F for changes to a 6-monthly GST taxable period:
    1. B, D, and F for other changes.

      1. Repealed
      Compare
      Notes
      • Section RC 7(3): replaced (with effect on 1 April 2008 and applying for the 2008–09 and later income years), on , by section 221(1) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
      • Section RC 7(3B) heading: inserted (with effect on 15 April 2020), on , by section 13(1) (and see section 13(3) for application) of the COVID-19 Response (Taxation and Other Regulatory Urgent Measures) Act 2020 (2020 No 10).
      • Section RC 7(3B): inserted (with effect on 15 April 2020), on , by section 13(1) (and see section 13(3) for application) of the COVID-19 Response (Taxation and Other Regulatory Urgent Measures) Act 2020 (2020 No 10).
      • Section RC 7(6): substituted, on , by section 527 of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
      • Section RC 7(7) heading: repealed, on , pursuant to section 499(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
      • Section RC 7(7): repealed, on , by section 499(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
      • Section RC 7 list of defined terms income year: inserted (with effect on 15 April 2020), on , by section 13(2) of the COVID-19 Response (Taxation and Other Regulatory Urgent Measures) Act 2020 (2020 No 10).
      • Section RC 7 list of defined terms inform: inserted, on , by section 74 of the Taxation (Transformation: First Phase Simplification and Other Measures) Act 2016 (2016 No 27).
      • Section RC 7 list of defined terms qualifying event: repealed, on , by section 499(2) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
      • Section RC 7 list of defined terms return: inserted (with effect on 15 April 2020), on , by section 13(2) of the COVID-19 Response (Taxation and Other Regulatory Urgent Measures) Act 2020 (2020 No 10).
      • Section RC 7 list of defined terms return of income: inserted (with effect on 15 April 2020), on , by section 13(2) of the COVID-19 Response (Taxation and Other Regulatory Urgent Measures) Act 2020 (2020 No 10).
      • Section RC 7 list of defined terms self-assessed adverse event: repealed, on , by section 499(2) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
      • Section RC 7 list of defined terms shareholder-employee: inserted (with effect on 15 April 2020), on , by section 13(2) of the COVID-19 Response (Taxation and Other Regulatory Urgent Measures) Act 2020 (2020 No 10).