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What is Provisional Tax?

Writer's picture: Kate DoyleKate Doyle

Updated: Jul 8, 2024

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



An example of BDO’s IR4

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