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RC 15: Choosing to use GST ratio
or “How to choose using a GST ratio for your income tax”
You could also call this:

“Requirements for using GST ratio to calculate provisional tax”

You can use a GST ratio to figure out how much provisional tax you need to pay for a tax year. But you can only do this if you meet certain rules.

In the year before, your residual income tax had to be more than $5,000 but not more than $150,000. You also needed to be registered for GST for the whole year and have given a GST return. Your business couldn’t have just started that year.

The amount of your residual income tax compared to your total taxable supplies (as a percentage) must be between 0% and 100%.

In the year you want to use the GST ratio, you must file GST returns every month or every two months.

If you choose to use a GST ratio, it will apply for that tax year and future years, unless you decide to change how you calculate your tax.

When we talk about the previous tax year, we might sometimes mean an even earlier year if that’s what you used to work out your GST ratio.

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Next up: RC 17: When GST ratio must not be used

or “Situations when you must stop using a GST ratio for tax payments”
Next

Part R General collection rules
Provisional tax: Table R1: Summary of instalment dates and calculation methods for provisional tax

RC 16Who may use GST ratio?

  1. A person liable to pay provisional tax may choose to use a GST ratio to determine under section RC 5(6) the amount of provisional tax payable for a tax year only if they meet all the requirements of subsections (2) and (3) in relation to the same entity.

  2. For the purposes of determining their eligibility for a tax year, the person must meet the following requirements in the preceding tax year and corresponding income year:

  3. their residual income tax, as calculated, was more than $5,000 but no more than $150,000; and
    1. they were a registered person for the whole income year, and provided a return under the Goods and Services Tax Act 1985 for an entity whose taxable activity did not begin operations in that tax year; and
      1. the ratio of their residual income tax to total taxable supplies, as calculated under section RC 11 and expressed as a percentage, is between zero and 100%.

        1. For the tax year in which the person uses a GST ratio, they must be liable to file a return under the Goods and Services Tax Act 1985 for a 2-month or a 1-month period under section 15(1)(b) and (c) of that Act.

        2. A person’s election under section RC 15 to use a GST ratio applies for the tax year for which the election is made and in later tax years, unless the person changes their calculation method under section RC 18.

        3. In this section, a reference to a preceding tax year includes a reference to a tax year earlier than the preceding tax year if that earlier tax year is used for the purposes of calculating a GST ratio.

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        Notes
        • Section RC 16(2): amended, on , by section 531(1) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
        • Section RC 16(2)(a): amended, on , by section 27(1) (and see section 27(2) for application) of the COVID-19 Response (Taxation and Social Assistance Urgent Measures) Act 2020 (2020 No 8).
        • Section RC 16(2)(b): amended, on , by section 531(2) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
        • Section RC 16(5): amended, on , by section 531(3) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).