What is provisional tax?
Provisional tax is a way of paying your income tax in instalments throughout the year, rather than in one lump sum after the year ends. Think of it as pre-paying your expected tax bill.
Who needs to pay provisional tax?
You'll need to pay provisional tax if your Residual Income Tax (RIT) — the tax you owe after all credits and deductions — was more than $5,000 at the end of the previous tax year.
If your tax bill was $5,000 or under, you don't need to pay provisional tax. You simply pay your tax bill after filing your IR3.
How much do you pay?
Most people use the standard option, which bases your provisional tax on last year's tax bill plus a 5% uplift. IRD calculates this for you and tells you how much to pay and when.
Standard uplift formula:
Last year's RIT × 105% = This year's provisional tax
For example, if your tax bill last year was $8,000:
$8,000 × 105% = $8,400 total provisional tax for the year
When are payments due?
Under the standard option, provisional tax is paid in three instalments during the tax year. The due dates depend on your balance date and whether you're registered for GST.
For most sole traders with a 31 March balance date, the three standard instalments fall approximately in:
- Late August
- Mid-January
- Early May
IRD will confirm your exact due dates in myIR.
Note: If you file GST returns six-monthly, you only pay provisional tax in two instalments.
What if your income changes?
If your income drops significantly from the previous year, you can switch to the estimation option — where you estimate what you think you'll earn and pay provisional tax based on that instead. Be careful though: if you underestimate, IRD will charge use-of-money interest on any shortfall.
What happens if you miss a payment?
If you miss a provisional tax payment or underpay, IRD charges use-of-money interest (UOMI) on the amount you owe from the date it was due. Staying on top of your provisional tax dates helps you avoid these extra costs.
Tax agents and extensions
If you use a registered tax agent (like Lodg), your provisional tax dates may differ from the standard dates. Tax agents are allocated different due dates that spread across the year.
💡 Lodg tracks your income throughout the year and helps you understand your provisional tax obligations — so you're never surprised by a large bill.
Source: ird.govt.nz — Provisional tax | ird.govt.nz — Standard option | business.govt.nz — Income tax and provisional tax