Free Provisional Tax Calculator for New Zealanders
If your residual income tax was $5,000 or more last year, IRD requires provisional tax instalments through the year. The standard option uplifts last year’s tax by 5%; estimation lets you self-forecast; AIM pays through accounting software each GST cycle.
Your provisional tax
Based on last year's RIT of $30,000 using the standard method.
About our Provisional Tax Calculator
Provisional taxProvisional taxTax paid in instalments through the year by self-employed and company taxpayers.View in glossary → is how NZ self-employed and company taxpayers pay tax through the year, instead of having it deducted at source like an employee’s PAYE. The threshold is straightforward: if last year’s residual income tax was $5,000 or more, you owe provisional tax this year, in three instalments due 28 August, 15 January, and 7 May.
Three methods are available. Standard: take last year’s RIT and add 5%. Estimation: self-estimate this year’s tax. AIM: pay 98% of current-period profit each GST cycle through accounting software. Most NZ small businesses use standard; AIM is gaining ground for businesses on Xero or MYOB.
The calculator runs all three methods against your inputs. Move between them to see the difference in total annual cash and per-instalment cash. Standard is usually the safest for steady-income businesses; estimation suits businesses expecting a major drop; AIM smooths cash flow into six (or twelve) smaller payments.
How to use it
Enter last year’s residual income tax (RIT). The figure is on your IR3 (sole trader) or IR4 (company) assessment as "residual income tax". Pick the method (standard / estimation / AIM) and the GST cycle.
The result panel returns the total provisional tax for the year, the per-instalment amount, and the due dates. For the estimation method, enter your forecast RIT for the new year directly.
If you have not crossed the $5,000 RIT threshold yet, provisional tax does not apply; you square up entirely at year-end on your IR3 or IR4. Mark this on the calculator by setting last year’s RIT to $4,500 or below and the result panel handles the case.
Why use it
Cash flow is the single biggest reason small NZ businesses get caught out by provisional tax. The August instalment lands four months into the new financial year, often before the business has settled into a stable income pattern. Knowing the figure ahead of time avoids the "where did three months of profit go?" reaction at the August due date.
The same calculator also makes the standard-vs-estimation choice concrete. For a business expecting a major income drop, sticking with standard means paying provisional tax based on a higher prior-year RIT, then receiving a refund at year-end square-up. Switching to estimation pays less upfront but exposes the business to use-of-money interest if the actual RIT comes in higher than estimated.
For people new to provisional tax (just crossed the $5,000 threshold for the first time), the calculator is the fastest way to understand the cash-flow implications before the first instalment falls due. The August date catches many first-year provisional taxpayers by surprise.
The maths behind it
Standard method: Total provisional tax = Last year’s RIT × 1.05 | AIM: Total = 98% of period profit | Estimation: Total = self-estimated tax for the year The standard method uplifts the prior year’s residual income tax (RIT) by 5%, then splits the total into three equal instalments due 28 August, 15 January, and 7 May. The AIM (Accounting Income Method) calculates 98% of period profit each GST cycle, paid through approved accounting software. The estimation method lets you self-estimate the year’s tax and pay accordingly, with use-of-money interest applied to any shortfall once actual RIT is known.
Worked example
Hugh, IT contractor in Taupō, with $30,000 of residual income tax last year and rising income this year.
Hugh earned $135,000 last financial year as a sole trader contractor and ended up with $30,000 of residual income tax (RIT) after his provisional payments squared up.
Standard method for the new year: $30,000 × 1.05 = $31,500 of expected provisional tax. Split across three instalments: $10,500 due 28 August, $10,500 due 15 January, and $10,500 due 7 May.
If Hugh expects this year to be quieter (forecast $100,000 income, RIT around $22,000), he can switch to estimation method and pay $7,333 per instalment. Risk: if actual RIT comes in higher than estimated, IRD charges use-of-money interest on the shortfall (currently around 11%).
If Hugh has joined the GST Cycle Payment Scheme (also called ‘ratio option’ or AIM), each GST return doubles as a provisional tax payment based on actual current-period profit. AIM smooths cash flow but requires approved accounting software (Xero, MYOB, etc.).
Things to keep in mind
- Threshold for provisional tax. Provisional tax is required if your residual income tax for the prior year was $5,000 or more. Below that, you square up at year-end without provisional payments.
- Standard method protects against interest. Pay the full standard amount (last year + 5%) and IRD does not charge use-of-money interest on any shortfall, even if your actual RIT comes in higher. Estimation method removes that protection; if you under-estimate, you pay use-of-money interest on the shortfall.
- AIM works for some, not all. AIM suits businesses with steady income and clean accounting software (Xero, MYOB). Most NZ sole traders and small companies meeting those criteria can switch in. AIM is unsuitable for businesses with seasonal income spikes or complex inter-period adjustments.
- Use-of-money interest is significant. IRD charges use-of-money interest on under-paid provisional tax (currently around 11%). Over-payments earn a small interest credit (currently around 4%). The asymmetry is intentional; under-payment costs more than over-payment.
- GST and provisional tax pair on the same dates. For GST-registered taxpayers, the standard provisional-tax instalment dates align with the GST return cycle (28 August, 28 October, 15 January, 7 May for two-monthly filers). Most NZ small businesses pay GST and provisional tax on the same days each cycle.
NZ-specific notes
FAQs
When does provisional tax actually apply?
When your residual income tax (RIT) for the prior year was $5,000 or more. Below that, you square up at year-end without provisional payments. The threshold is reviewed periodically; if you crossed the line for the first time last year, you become a provisional taxpayer this year.
Which method should I use?
The calculator does not advise on this. The standard method is simplest and protects against use-of-money interest. AIM suits businesses with clean accounting software and even income. Estimation suits businesses expecting a major income drop. Most NZ small businesses on stable income use standard; growing businesses or sole traders sometimes switch to AIM.
What is RIT?
Residual Income Tax is your actual tax liability for the year, after all credits and adjustments, minus any PAYE or other taxes already deducted at source. It is the figure that determines whether you owe provisional tax for next year. RIT is calculated when you file your IR3 (sole trader) or IR4 (company) tax return.
Can I pay provisional tax monthly instead of in 3 lumps?
Yes, with AIM. Each GST return cycle doubles as a provisional tax payment, smoothing cash flow into 6 payments per year (or 12 for monthly GST filers). The trade-off is that AIM requires approved accounting software and clean digital books.
What is "use-of-money interest"?
Interest IRD charges on under-paid provisional tax (currently around 11%) or pays on over-payments (currently around 4%). The asymmetry is intentional; the rates are reviewed periodically by IRD. Use the standard method to avoid the interest charge entirely if your income is steady.
What happens if I miss an instalment?
Late-payment penalties apply: 1% on the day after the due date, then a further 4% if still unpaid 7 days later. Use-of-money interest accrues on top of penalties. IRD’s installment-arrangement option allows late or partial payments without penalty if requested in advance.
Does provisional tax apply to companies as well as sole traders?
Yes. Companies pay company income tax at the flat 28% rate, with provisional tax instalments on the same schedule as individuals. The threshold ($5,000 RIT) and methods (standard, estimation, AIM) apply equally.
References & sources
- Inland Revenue, "Provisional tax". ird.govt.nz
- Inland Revenue, "Accounting Income Method (AIM)". ird.govt.nz
- Inland Revenue, "Use-of-money interest". ird.govt.nz
- Inland Revenue, "When provisional tax is due". ird.govt.nz