Provisional Tax is a method of paying tax for business owners and individuals who earn income that is not subject to PAYE.
You will need to pay provisional tax if you had to pay more than $5,000 tax at the end of the year from your last return ($2,500 before the 2020 return).
Residual income tax is the amount of tax calculated on taxable income, less any tax credits such as PAYE, Resident Withholding Tax, or imputation credits.
Calculating provisional tax
A common method used for calculating provisional tax is the standard option. This calculates provisional tax according to the last income tax return filed. If the previous year’s income tax return has been filed, the provisional tax amount is the residual income tax plus 5%. If the previous year’s tax return has not been filed, then the calculation is the residual income tax of the year prior to the previous year plus 10%.
On the filing of an income tax return, a washup calculation is made where the provisional tax paid is deducted from the residual income tax payable, resulting in either a tax refund or further tax to pay.
Payment dates for provisional tax
Provisional tax is paid in instalments, and generally there are three instalments unless you are registered for GST on a six-monthly basis, in which case there are two instalments.
For a balance date of 31 March 2020, the due dates for tax payments are as follows:
|If you are not registered for GST||If you are registered for GST and pay monthly or two-monthly||If you are registered for GST and pay every six months|
|First instalment||28 August 2019||28 August 2019||28 October 2019|
|Second instalment||15 January 2020||15 January 2020||7 May 2020|
|Third instalment||7 May 2020||7 May 2020||–|