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RC 19: Disposal of assets
or “How selling a business asset can affect your provisional tax”
You could also call this:

“How to adjust residual income tax for transitional years”

This section explains how to calculate residual income tax in transitional years. It applies when the previous tax year or the year before that was a transitional year.

You need to adjust the amount of residual income tax for the transitional year to reflect what it would be in a 12-month period. To do this, you use a formula: residual income tax × days in current tax year ÷ days in transitional year.

In this formula, ‘residual income tax’ can be one of three things:

  1. The previous tax year’s amount, increased by 5%
  2. The amount from two years ago, increased by 10%
  3. An amount you estimate yourself

‘Days in current tax year’ means the number of days in the current tax year. ‘Days in transitional year’ means the number of days in your transitional year.

After you calculate the result, you need to round it down to the nearest whole dollar. For example, if you get $10.98, you would use $10 as the final amount.

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Next up: RC 21: Paying provisional tax in transitional years

or “How to pay provisional tax during a change in your business's financial year”
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Part R General collection rules
Provisional tax: Table R1: Summary of instalment dates and calculation methods for provisional tax

RC 20Calculating residual income tax in transitional years

  1. This section applies for the purposes of section RC 5(2) and (3) and the calculation of a person’s residual income tax for a tax year if—

  2. the preceding tax year is a transitional year:
    1. the tax year before the preceding tax year is a transitional year.

      1. The amount of residual income tax for the transitional year must be increased or decreased by the amount calculated under subsection (3) to reflect the amount that would apply in a 12-month period.

      2. The amount of residual income tax is calculated using the formula—

        residual income tax × days in current tax year ÷ days in transitional year.

        Where:

        • In the formula,—

        • residual income tax is a person’s residual income tax, as applicable—
          1. for the preceding tax year, uplifted by 5%; or
            1. for the tax year before the preceding tax year, uplifted by 10%; or
              1. the amount estimated by them:
              2. days in current tax year is the number of days in the current tax year:
                1. days in transitional year is the number of days in the person’s transitional year.

                  1. An amount of residual income tax calculated under this section is truncated to whole dollars, for example $10.98 equals $10.

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                  Notes
                  • Section RC 20(5) heading: inserted (with effect on 1 April 2017), on , by section 174(1) (and see section 174(2) for application) of the Taxation (KiwiSaver, Student Loans, and Remedial Matters) Act 2020 (2020 No 5).
                  • Section RC 20(5): inserted (with effect on 1 April 2017), on , by section 174(1) (and see section 174(2) for application) of the Taxation (KiwiSaver, Student Loans, and Remedial Matters) Act 2020 (2020 No 5).