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RC 35: Further income tax credited to provisional tax liability
or “Using further income tax to pay provisional tax instalments”
You could also call this:

“How to handle excess tax paid by companies using the AIM method”

This section explains what happens when a company overpays its provisional tax using the AIM method. If your company uses this method and pays too much, you can ask the tax department to credit the extra money to one of your shareholder-employees instead. This credit can be treated as a tax payment for the shareholder-employee or as a tax refund to the company.

The amount you can credit to a shareholder-employee is limited. It can’t be more than:

  1. The amount your company chooses
  2. The shareholder’s remaining income tax for that year, minus any tax credits they already have
  3. Your company’s tax credit for that year, minus the company’s remaining income tax

When deciding how much to credit, you need to use the smallest amount from these three options. This helps make sure the right amount of tax is paid by both the company and the shareholder-employee.

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

RC 35BTreatment of overpaid provisional tax instalments calculated using AIM method

  1. This section applies for the purposes of sections RC 5(5B), RC 7B, RC 9(4B), RC 10B, and RM 6B (Refunds for overpaid AIM method instalments) when—

  2. a company uses the AIM method to calculate and pay a provisional tax liability; and
    1. the amount of an instalment of provisional tax is overpaid.

      1. The company may ask the Commissioner to credit the overpaid amount to the account of a shareholder-employee of the company, treating the amount as—

      2. a payment of tax for the shareholder-employee:
        1. a refund of income tax paid to the company for the purposes of section OB 32 (ICA refund of tax or transfer from account).

          1. The amount that may be credited under subsection (2) must be no more than the least of the following:

          2. an amount chosen by the company; and
            1. the amount of the shareholder’s residual income tax for the relevant tax year less the amount of any tax credit that the shareholder has under section LB 2 (Tax credits for provisional tax payments) for the tax year, treating a negative amount as zero; and
              1. the amount of the company’s tax credit under section LB 2 for the relevant tax year less the amount of the company’s residual income tax for the tax year, treating a negative amount as zero.

                Notes
                • Section RC 35B: inserted, on , by section 185(1) (and see section 185(2) for application) of the Taxation (Annual Rates for 2017–18, Employment and Investment Income, and Remedial Matters) Act 2018 (2018 No 5).
                • Section RC 35B(2): amended (with effect on 1 April 2019), on , by section 177(1) (and see section 177(4) for application) of the Taxation (KiwiSaver, Student Loans, and Remedial Matters) Act 2020 (2020 No 5).
                • Section RC 35B(2)(a): replaced (with effect on 1 April 2019), on , by section 177(2) (and see section 177(4) for application) of the Taxation (KiwiSaver, Student Loans, and Remedial Matters) Act 2020 (2020 No 5).
                • Section RC 35B(2)(b): amended, on , by section 150 of the Taxation (Annual Rates for 2021–22, GST, and Remedial Matters) Act 2022 (2022 No 10).
                • Section RC 35B list of defined terms shareholder-employee: inserted (with effect on 1 April 2019), on , by section 177(3) (and see section 177(4) for application) of the Taxation (KiwiSaver, Student Loans, and Remedial Matters) Act 2020 (2020 No 5).