Provisional tax NZ: who pays, methods and UOMI
Provisional tax NZ is our hub for who must pay residual income tax in instalments, which Inland Revenue (IRD) option you sit on, and when use of money interest (UOMI) starts. It is not a separate tax from income tax. You pay it during the year so you are not hit with one lump sum after year end.
This page is for the 2026/27 tax year (1 April 2026 to 31 March 2027). It is for Wellington contractors, Hamilton landlords, and Dunedin cafes that already file GST. Figures are working papers. GSTCalc.nz is not Inland Revenue. Ads may fund this free site. This is not tax advice.
Three Kiwi situations: first year, estimate trap, GST ratio
Inland Revenue’s provisional tax page says you pay provisional tax if you had to pay more than $5,000 tax at the end of the year from your last return. The same page lists common earners: self employed income, rental income, contractor income, partnership income, and overseas income. A salary already taxed through PAYE is a different clock.
Wellington designer
First year, no prior residual income tax
Hypothetical sole trader. Last year’s residual income tax was $5,000 or less, so there are usually no instalments this year. File the IR3 in myIR and pay any residual income tax as end of year tax. If that bill is more than $5,000, instalments usually start the following year. Action: put cash aside from month one. Do not treat year one as tax free.
Hamilton contractor
Work dropped, estimation used
Hypothetical contractor. Income is down, so they switch from the standard option to estimation in myIR. Inland Revenue lets you estimate residual income tax, including at $0. If the estimate is too low once the return is filed, interest can run from each instalment date even if the estimated amounts were paid on time. Action: estimate again before the final date if profit recovers.
Dunedin cafe
Seasonal sales, ratio with GST
Hypothetical GST registered cafe with winter quiet months. The ratio option applies Inland Revenue’s percentage to GST taxable supplies so payments move with sales. You must elect before the income year starts. Partnerships cannot use it. Six monthly GST filers cannot use it. Action: check the live tests, then read how GST and instalments line up.
Source: Inland Revenue provisional tax, estimation option, and ratio option. Cash wages sit on the PAYE calculator. Contractor labelling is a different trap: contractors vs employees. GST on cafe sales is still on the GST calculator.
Pull highlight: Inland Revenue: 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.
Who must pay provisional tax in New Zealand?
You generally pay if residual income tax from the last return was more than $5,000. Inland Revenue also lists salary and wage earners who pick up a one off amount with no tax deducted: a wrong tax code, a lump sum with too little tax, employee share scheme income without tax deducted, or some bright line property sales. Check that list on the same overview page before you assume wages keep you out.
A first year of self employment often has no prior residual income tax, so instalments may not start until the next year. Inland Revenue still describes two current year cases even with no prior history. An individual (not a trustee) may have to pay now if residual income tax was less than $5,000 for the last 4 years, residual income tax for the current year is $60,000 or more, and they stopped employment income and started a taxable activity with no tax deducted at source. A non individual (including a trustee) may have to pay now if they started a taxable activity this year, had none in the last 4 years, and residual income tax is $60,000 or more (from the 2018 year onwards).
Source: Inland Revenue interest on provisional tax (new liability rules). New operators can follow the new business GST compliance roadmap. GST registration when sales grow is a separate $60,000 test: GST 60k threshold guide and register for GST in NZ. Sole trader income tax estimates sit on the self employed tax calculator.
Which IRD option applies: standard, estimation, ratio, AIM?
Inland Revenue uses the standard option unless you choose otherwise. You can change from standard to AIM or estimation at any time. You cannot change to the ratio option during the same year. AIM needs approved software and a statement of activity. Guides: Provisional tax IR289 (April 2025), GST and provisional tax IR235 (2020), and Accounting income method IR1054 (2019).
| Option | How Inland Revenue sets the amount | Watch for |
|---|---|---|
| Standard | Previous year’s residual income tax plus 5 percent, or residual income tax from 2 years ago plus 10 percent, depending on when the last return is filed and whether you have an extension of time. | Default path. Three instalments, or two if you file six monthly GST returns. |
| Estimation | Your forecast residual income tax for this year. You can estimate at $0. You can estimate on an instalment date, or any other date up to the final instalment date. | A low estimate can attract a penalty and interest once the return is filed. Switching from standard to estimation can change interest as if you estimated for the full year. |
| Ratio | Inland Revenue’s ratio percentage applied to GST taxable supplies. Built for income that moves through the year. | Must elect before the income year starts. Needs GST for the whole previous year and part of the year before that. Residual income tax greater than $5,000 and up to $150,000 (2020 or later). Monthly or two monthly GST. Not a partnership. Ratio between 0 and 100 percent. |
| AIM | Accounting income method. Individuals and companies with yearly turnover under $5 million, using AIM capable software. You pay when the business makes a profit. | File a statement of activity. Miss two and Inland Revenue contacts you. Keep missing and you may be moved to estimation, with interest. You must choose AIM again each year: accounts switch back to standard at the start of the year until you file the first statement. |
Source: Inland Revenue standard option, estimation option, ratio option, and accounting income method (AIM). For the dollar split on a standard or estimation path, use the provisional tax calculator. This hub stays on who pays and which option you elect. GST timing with ratio and AIM is covered in GST provisional tax.
When do provisional tax instalments fall?
Due dates depend on the option and whether you are GST registered. Inland Revenue’s payment dates page lists these March balance date (31 March) dates. If your balance date is not 31 March, open the income tax tile in myIR and view provisional tax. AIM dates line up with GST. Monthly GST filers on AIM file a statement of activity every month.
| Path (31 March balance date) | Instalment dates Inland Revenue lists |
|---|---|
| Standard or estimation | 28 August, 15 January, 7 May. GST registered people can have other instalment options. Six monthly GST usually means two instalments on the standard option. |
| Ratio | Six dates: 28 June, 28 August, 28 October, 15 January, 28 February, 7 May. |
| AIM (two monthly GST, or not GST registered) | 28 June, 28 August, 28 October, 15 January, 28 February, 7 May. Monthly GST AIM has twelve dates on the same Inland Revenue page. |
Source: Inland Revenue payment dates for provisional tax and paying your provisional tax. A payment is applied to the earliest unpaid instalment. GST return dates sit on the GST tax due date calendar. File GST in myIR with how to file your GST return in myIR.
Trap: estimation is not a free pass on UOMI
PersonalFinanceNZ threads treat the myIR estimate button as the safe way to cut a bill when work dries up. Inland Revenue’s interest page: on estimation, if you have not paid enough at each instalment based on final residual income tax, interest is charged from the day after those instalment dates. You may be charged even if you paid your estimated amounts in full and on time. You may also be charged penalties. If you used standard and then switch to estimation, interest is calculated as if you estimated for the full year.
When does use of money interest start?
Inland Revenue says interest is not a penalty. It is a charge for the use of money. They may charge you on late or underpaid provisional or end of year tax, and they may pay you if you overpay. They will not charge or pay interest if you under or overpay by $100 or less. They work out the charges once you have filed your income tax return.
Standard, residual income tax under $60,000
Interest is charged or paid from the day after the end of year tax due date. Forums call this a safe harbour. Inland Revenue’s live page uses the $60,000 test, not that nickname.
Standard, residual income tax $60,000 or more
Interest is charged or paid from the day after the final instalment date if other instalments were paid in full and on time. Late or short earlier instalments can attract interest from the day after that missed date.
Ratio, AIM, tax pooling
Ratio: pay on time and Inland Revenue will not charge or pay interest on the provisional tax; interest can still apply if you owe more than $100 after the end of year due date (7 February, or 7 April with a tax agent extension). AIM: pay in full and on time and they will not charge use of money interest; they will not pay you interest if you overpay. Tax pooling groups payments through a registered intermediary so underpayments in the pool can be offset. Inland Revenue says you can use pooling on standard, estimation, or ratio.
Source: Inland Revenue interest on provisional tax and tax pooling. Late GST money is a different calculator: late GST penalty calculator.
GST is not provisional tax
GST is a tax on taxable supplies. Provisional tax is income tax paid early. Inland Revenue aligns some dates so you can pay both in one sitting, which is why cafe owners mix them up. Everyday plus GST still sits on the GST Guide NZ hub. First GST decisions start at the GST Basics Guide. Ratio and AIM detail sit in Advanced GST Rules and GST provisional tax. Expense records sit in Business and Expenses GST. Industry filing habits sit in Industry Specific GST, including GST for contractors and Airbnb and short term rentals.
What people get stuck on
r/PersonalFinanceNZ posters ask if they can opt out because cancellations cut this year’s profit. Inland Revenue does not offer an opt out once you are over the $5,000 residual income tax test. You change option: estimation, ratio if you qualify, or AIM if turnover is under $5 million and you have approved software. Geekzone contractor threads that quote a $10,000 trigger are out of date against the live $5,000 page.
Medium pieces on shareholder salaries versus PAYE salaries are right that a shareholder salary with residual income tax more than $5,000 sits on instalments, while a PAYE salary has tax taken before the wage hits the bank. They are not a substitute for Inland Revenue’s option pages. Quora answers about US contractors living in New Zealand are coverage only: if you are a New Zealand tax resident with residual income tax more than $5,000, the same instalment rules apply. Australian PAYG and SARS tools are not this system.
Schedular withholding on a contract does not cancel provisional tax by itself. It reduces residual income tax. If residual income tax still clears $5,000, instalments can still apply. Use the withholding tax calculator for the deduction, then come back here for the instalment rules.
Frequently asked questions
Is provisional tax the same as GST?
No. Provisional tax is income tax paid in instalments. GST is a tax on taxable supplies. Inland Revenue lines up some due dates so you can pay both together. Ratio and AIM are the options that follow GST returns most closely.
Can I skip provisional tax if this year will be quieter?
No. There is no opt out once last year’s residual income tax was more than $5,000. Use estimation if income has dropped, or AIM if you qualify. Estimating at $0 is allowed if you do not expect residual income tax, but a shortfall can attract interest from each instalment date.
What do people mean by safe harbour?
Forums use that phrase for the standard option when residual income tax is under $60,000. Inland Revenue’s interest page: in that band, interest is charged or paid from the day after the end of year tax due date. The $60,000 line is also used on estimation (three instalments if you estimate more than $60,000) and on some first year new liability tests.
Do I pay provisional tax in my first year of self employment?
Usually no instalments in that first year, because there is no prior residual income tax over $5,000. You still owe income tax on the profit. File the return and pay the end of year tax. Instalments usually start the next year if residual income tax was more than $5,000. Read Inland Revenue’s two current year exceptions before you assume you are out.
Last verified 14 September 2026 against Inland Revenue provisional tax, standard option, estimation option, ratio option, accounting income method (AIM), payment dates for provisional tax, paying your provisional tax, interest on provisional tax, and tax pooling; Provisional tax guide IR289 (April 2025), GST and provisional tax IR235 (2020), Accounting income method IR1054 (2019). GSTCalc.nz is a free New Zealand publisher of tax calculators and guides. Ads may fund the site. We are not Inland Revenue and this is not tax advice.
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