Provisional tax is a way of paying your income tax to IRD as the income is earned throughout the year. It is paid in installments during the year based on what you expect your ultimate taxation liability is likely to be for the year, this expectation being based on either an uplift of the income tax paid in the previous year, or by way of estimate. Provisional tax is required to be paid only if income tax for the previous year (after allowing for source deduction payments) exceeds $2,500.
When an income tax return is filed for that year, credit is given for the total amount of provisional tax paid for the year and a balance of tax to pay (or to be refunded) is determined.
Up to 1 April 2008, provisional tax was payable 3 times a year and normally on the 7th day of the 4th, 8th and 12th month after the commencement of the financial year. This has now changed including the inclusion of a method to have taxpayers pay their provisional tax in conjunction with their GST returns. This combined payment basis is for the moment, elective, so taxpayers can continue to pay their provisional tax separately.
The payment due dates for provisional tax are based on the taxpayer's balance date, and are now:
Balance date 31 March:
1st provisional tax 28 August of the same year
2nd provisional tax 15 January of the following year
3rd provisional tax 7 May of the following year
Balance dates other than 31 March:
1st provisional tax on the 28th day of the 5th month after the previous balance date
2nd provisional tax on the 28th day of the 9th month after the previous balance date
3rd provisional tax on the 28th day of the 15th month after the previous balance date
The balance of taxes owing for any given year are payable by 7 February (or 7 April if the taxpayer uses a tax agent) of the following year.