What is Provisional Tax?

Provisional tax is basically tax in advance. Provisional tax estimates your next year’s tax bill and splits it across 3 payments. It’s essentially a budgeting system. You’ll have to pay provisional tax as an individual, partnership or company if you have received a tax bill of more than $5000 for the previous tax year.

Let me give you an example:

Your tax bill for financial year ending 31st March 2024 is $28,000. This will be due in early-mid 2025. 

Because $28,000 is more than $5000 you will need to pay provisional tax for the current year (financial year 2025 which ends 31st March 2025) across 2024 and 2025 dates.

It will look like this:

$28,000 + 5% = $29,400

$29,400 / 3 repayments = $9,800 – you will pay these three installments August 2024, January 2025 and May 2025.

In the video I have a grid which represents your IR3 or IR4.

What is an IR3 or IR4?

IR3 = tax returns for individuals and IR4 = for companies. 

This is the form with the boxes where you tell IRD your income and expenses for a financial year. If you have an accountant, they will complete the IR3/IR4 for you and all accountants have a slightly different version. They usually include a grid which shows you how much tax you have to pay and when.  

I have simplified an example in the video for you. Once you have watched the video, pull out your own IR3/IR4 and read yours.

There are different variations to the advice above, depending on your set up and provisional tax option. Get it touch with me (kate@tidybooks.co.nz) for more clarity or the IRD website is very helpful.

Picture of IRD’s IR3

Source: https://www.ird.govt.nz/-/media/project/ir/home/documents/forms-and-guides/ir1---ir99/ir3/ir3-2021.pdf?modified=20210330214514&modified=20210330214514

An example of BDO’s IR4