Provisional Tax For Businesses
Provisional tax for businesses is income tax paid in instalments once leftover tax from the last return is more than $5,000. It is not a second tax on top of GST, PAYE, or company tax.
Inland Revenue: provisional tax helps you manage your income tax. You pay it in instalments during the year instead of a lump sum at the end of the year. business.govt.nz: it often applies to businesses in their second year of trading. Inland Revenue will tell you if you need to pay in this way.
| Business type | Who files | Who can owe provisional tax | Tax rate Inland Revenue lists |
|---|---|---|---|
| Sole trader | IR3. business.govt.nz also points to IR10 or financial records. | The individual, if residual income tax was more than $5,000. | The tax rate for individuals. |
| Partnership | IR7 for the partnership. Each partner files an IR3. | The partners, not the partnership. Inland Revenue: partnerships do not pay income tax on their profits. | Each partner uses individual rates on their share. |
| Company | IR4 in myIR. IR4S for shareholder details on paper. | The company, if its residual income tax was more than $5,000. The owner can also have a personal bill. | Most companies: 28%. |
| Maori authority | The authority’s own return. | Same leftover tax test if it pays income tax. | 17.5%. |
| Non profit incorporated society | The organisation’s return. | Same leftover tax test if it pays income tax. | 28% if registered and incorporated under the Incorporated Societies Act 2022. |
One leftover tax test
Inland Revenue’s provisional tax page: you will have to pay provisional tax if you had to pay more than $5,000 tax at the end of the year from your last return. IR289: this includes individuals, companies and trusts. Who pays and which option you sit on stays on the Provisional Tax hub.
Which business structure actually pays?
The structure decides whose IRD number the instalments sit on. business.govt.nz: sole traders file an IR3. If you are in a partnership, each partner files an IR3 and the business files an IR7. If you are set up as a company, the business files an IR4. Inland Revenue’s income tax for partnerships page: partners pay income tax on any profit, and they can also claim partnership losses against their own personal income.
A Ltd can owe provisional tax on company profit at 28%. The shareholder can also owe provisional tax on a shareholder salary if that leftover tax is more than $5,000. PAYE wages are a different clock. Medium threads that treat a PAYE salary as the way to skip personal instalments are describing PAYE deduction, not an opt out from company provisional tax. Residual income tax is the leftover figure: what is residual income tax.
IR289 also lists income from a look through company with partnership income. Early payment discount in a first year is for self employed people, partners, or look through owners. Companies, trusts, and other forms of business organisations do not qualify. First year timing sits on first year self employed no provisional myth.
How do GST dates line up with business instalments?
Inland Revenue’s tax rates for businesses page: after the first year, they pay in instalments called provisional tax during the year. Provisional tax payments are usually combined with GST payments. GST is still a tax on taxable supplies. Provisional tax is still income tax. The dates can sit together. The taxes do not merge.
Standard or estimation
31 March year: 28 August, 15 January, 7 May. Six monthly GST: two instalments. business.govt.nz names October and May.
Ratio
Six dates with GST: 28 June, 28 August, 28 October, 15 January, 28 February, 7 May. Not a partnership. Elect before the income year starts.
AIM
Individuals and companies with yearly turnover under $5 million. Dates line up with GST. Pay when the business makes a profit.
Trap: three dates is not ratio
Some small business guides list 28 August, 15 January, and 7 May for the GST ratio method. Inland Revenue’s payment dates for provisional tax page gives ratio six instalments. Those three dates are standard or estimation. Confirm your dates in myIR if the balance date is not 31 March.
Option detail: AIM vs standard vs ratio. Dollar split on standard or estimation: provisional tax calculator.
How does a company work the 28% bill?
Inland Revenue: most companies pay 28%. The IR4 asks you to work out tax on taxable income at 28 cents in the dollar. File the IR4 in myIR: income tax account, then File or amend a return. The Companies income tax return guide IR4GU (April 2026) sits on that page. Self employed people are taxed as individuals, not at 28%.
Inland Revenue uses the standard option unless you choose otherwise. Instalments are previous year’s residual income tax plus 5%, or residual income tax from 2 years ago plus 10%, depending on when the last return is filed and whether you have an extension of time. You can change from standard to AIM or estimation at any time. You cannot change to the ratio option during the same year.
Use case: Nelson cafe Ltd and the owner
Situation: a labelled close company. Cafe profit sits in the Ltd. Drawings are not PAYE. Year end, the accountant books a shareholder salary.
Tax: the company files IR4 and may pay provisional tax at 28% if company residual income tax was more than $5,000. The owner files IR3. If leftover tax on the salary (after any PAYE) is more than $5,000, personal instalments can start as well.
Action: treat company myIR and personal myIR as two clocks. Do not assume cafe GST payments cleared the income tax. r/PersonalFinanceNZ closing a company threads still need an estimate in myIR if profit has stopped. Estimation interest risk sits on estimation method and UOMI risk.
Can a business use tax pooling?
Yes, on the paths Inland Revenue names. Paying your provisional tax: you can use tax pooling to manage your payments and pay less interest if you use the standard, estimation or ratio options. How tax pooling works: clients pay registered intermediaries. Intermediaries deposit payments into an account with Inland Revenue. A transfer to your client account is treated as a tax payment from the date it was paid into the tax pool.
Pooling payments can cover voluntary or normal provisional tax payments, reassessments of income tax, and mitigating use of money interest in the first year of provisional tax. Until the intermediary transfers a payment, taxpayer obligations are not met. You may still see reminders. Late payment penalties or use of money interest will not apply until after an income tax assessment, on that pooling page.
| If this happens | Inland Revenue rule to open |
|---|---|
| You miss a due date | Late payment penalties: 1% the day after the due date, then 4% on the remaining tax including penalties on the 7th day. The extra 1% each month does not apply to income tax, including provisional tax. |
| You cannot pay in full | business.govt.nz: call Inland Revenue. If you just do not pay, you will be charged interest and penalties. |
| Contract tax is already withheld | business.govt.nz: labour hire must deduct. Other contractors can opt in if the payer agrees. Pick the rate on IR330C, from 10% up to 100% for New Zealand tax residents. Withholding credits reduce residual income tax. If leftover tax is still more than $5,000, instalments can still start. Use the withholding tax calculator. |
| First year of trading | Inland Revenue tax rates for businesses: file at the end of the first year and pay a lump sum, then instalments after that. AIM can start smaller, more frequent amounts as soon as you trade (business.govt.nz). |
Records still matter
business.govt.nz: include expense totals in the return. You do not have to send receipts unless asked. Keep them for at least seven years. Put tax money aside as income comes in. A high interest account is their cashflow tip, not an Inland Revenue method.
You cannot opt out
r/PersonalFinanceNZ asks if a quiet year, a closed Ltd, or an extra payment before 31 March can switch provisional tax off. Inland Revenue does not offer an opt out once residual income tax was more than $5,000. Extra cash sent in does not rewrite residual income tax. You change option, estimate, or use tax pooling. You do not delete the instalment year.
Frequently asked questions
Do New Zealand businesses pay provisional tax?
Yes, if residual income tax from the last return was more than $5,000. Inland Revenue: you pay it in instalments during the year instead of a lump sum at the end of the year. business.govt.nz: if you have to pay less than $5,000 of income tax, you just need to make one payment at the end of the tax year.
Does a partnership pay provisional tax itself?
No. Inland Revenue: partnerships do not pay income tax on their profits. The profit or loss is shared between the partners. The partnership files an IR7. Each partner files an IR3 showing that share. Provisional tax sits on the partner if that partner’s residual income tax is more than $5,000. Partnerships cannot use the ratio option.
Do companies pay the same instalments as sole traders?
The $5,000 residual income tax test and the standard, estimation, ratio, and AIM options are the same framework. Inland Revenue: any taxpayer who pays income tax may have to pay provisional tax. This includes individuals, companies and trusts. Most companies pay income tax at 28%. Companies file an IR4. Sole traders file an IR3 and use individual rates. A company bill and an owner’s personal bill can both be in play.
Can a business use tax pooling for provisional tax?
Yes, on the standard, estimation, or ratio options. Inland Revenue: you can use tax pooling to manage your payments and pay less interest if you use those options. Clients pay a registered intermediary. Inland Revenue treats a transfer to your account as a tax payment from the date it was paid into the tax pool. Pooling can cover voluntary or normal provisional tax payments, including mitigating use of money interest in the first year of provisional tax.