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Income Tax Act 2007

General collection rules - Provisional tax

RC 8: GST ratio method

You could also call this:

“How to calculate your tax payments using your GST information”

When you have to pay provisional tax, you can use a method called the GST ratio method if you meet certain requirements. This method helps you figure out how much provisional tax to pay for a tax year.

Your GST ratio is a percentage you get by dividing your residual income tax from the previous tax year by your total taxable supplies for that same year. These amounts are called base amounts.

If you don’t know the base amounts for the previous year, you can use the amounts from the year before that. In some cases, you might need to use amounts from two years ago.

The Commissioner of Inland Revenue will work out your GST ratio for you. They’ll let you know what it is by putting it on your GST return form or telling you in another way.

If your base amounts change, the Commissioner will adjust your GST ratio and tell you the new one. You’ll start using the new ratio 30 days after you’re told about it.

If you’ve been through a transitional year (a year when your balance date changed), there are special rules about which years’ figures to use.

When this section talks about total taxable supplies, it means the total value of your taxable supplies for a period, including GST.

There are some other rules that might change how this section works in certain situations.

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View the original legislation for this page at https://legislation.govt.nz/act/public/1986/0120/latest/link.aspx?id=DLM1519816.

Topics:
Money and consumer rights > Taxes
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Part R General collection rules
Provisional tax

RC 8GST ratio method

  1. A person liable to pay provisional tax who meets the requirements of section RC 16 and is not excluded by section RC 17 may choose to use a GST ratio to determine the amount of provisional tax payable for a tax year.

  2. The person’s GST ratio is the percentage figure that is obtained by dividing their residual income tax for the preceding tax year by their total taxable supplies for the corresponding income year. The amount of residual income tax and the amount of total taxable supplies are called base amounts for the purposes of this section.

  3. If a base amount for the preceding tax year or corresponding income year is not known, the GST ratio is the percentage based on the assessment for the tax year and corresponding income year that are just before the preceding tax year and corresponding income year.

  4. Subsection (3) does not apply and the GST ratio is the percentage based on the assessments of the base amounts for the year that is 2 years before the preceding tax year if—

  5. for the year before the preceding tax year—
    1. an assessment of a base amount has not been made and the absence of an assessment arises because of an extension of time for filing a return for the year, or a period in the year:
      1. an assessment of a base amount is the subject of a dispute or challenge under the Tax Administration Act 1994:
        1. the year is a transitional year; and
        2. for the year that is 2 years before the preceding tax year—
          1. the base amounts have been assessed; and
            1. the circumstances in paragraph (a)(ii) and (iii) do not exist.

            2. The Commissioner must calculate a person’s GST ratio, informing them by—

            3. including the percentage figure on the person’s preprinted GST return form; or
                1. some other means.

                  1. The Commissioner must adjust a person’s GST ratio if a base amount is revised through, among other reasons,—

                  2. an assessment or an amended assessment of the person’s income tax return for the preceding tax year; or
                    1. a change in the value of the total taxable supplies for the corresponding income year; or
                      1. the disposal of an asset to which section RC 19 applies.

                        1. When subsection (5) applies, the Commissioner must inform the person of the new GST ratio. The new ratio applies in relation to the relevant instalment dates that occur 30 days after the date on which the person is informed.

                        2. If a person has paid instalments of provisional tax in a transitional year, for the tax year that follows the transitional year, for the purposes of this section and section RC 11, they must—

                        3. ignore the transitional year when determining their residual income tax or total taxable supplies; and
                          1. base their determination of residual income tax and total taxable supplies on the tax year preceding the transitional year.

                            1. Subsection (7) does not apply and the GST ratio is the percentage based on the assessments of the base amounts for the year that is 2 years before the transitional year if—

                            2. for the year before the transitional year—
                              1. an assessment of a base amount has not been made and the absence of an assessment arises because of an extension of time for filing a return for the year, or a period in the year:
                                1. an assessment of a base amount is the subject of a dispute or challenge under the Tax Administration Act 1994:
                                  1. the year is a transitional year; and
                                  2. for the year that is 2 years before the transitional year—
                                    1. the base amounts have been assessed; and
                                      1. the circumstances in paragraph (a)(ii) and (iii) do not exist.

                                      2. In subsections (2), (5), and (7), and in sections RC 11, RC 19, and RC 31, total taxable supplies, for a person and a period, means the amount that is the total value of taxable supplies by the person for the period. The amount includes the GST charged on the supplies.

                                      3. Sections RZ 4 (GST ratio method: 2010–11 to 2013–14 income years) and RZ 5D (Standard method or GST method: transition for Maori authorities) modify this section.

                                      Compare
                                      Notes
                                      • Section RC 8(3B) heading: inserted, on , by section 528(1) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
                                      • Section RC 8(3B): inserted, on , by section 528(1) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
                                      • Section RC 8(4)(b): repealed, on , by section 51(1) of the Taxation (Transformation: First Phase Simplification and Other Measures) Act 2016 (2016 No 27).
                                      • Section RC 8(7B) heading: inserted, on , by section 528(2) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
                                      • Section RC 8(7B): inserted, on , by section 528(2) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
                                      • Section RC 8(9): amended (with effect on 1 October 2010), on , by section 122 of the Taxation (GST and Remedial Matters) Act 2010 (2010 No 130).
                                      • Section RC 8(9): amended, on , by section 26 of the Taxation (Budget Measures) Act 2010 (2010 No 27).
                                      • Section RC 8(9): amended, on , by section 40 of the Taxation (Personal Tax Cuts, Annual Rates, and Remedial Matters) Act 2008 (2008 No 36).
                                      • Section RC 8 list of defined terms inform: inserted, on , by section 51(2) of the Taxation (Transformation: First Phase Simplification and Other Measures) Act 2016 (2016 No 27).