Income tax Dates
The estimation option can help you avoid overpaying or underpaying your provisional tax. It may be right for you if you already pay provisional tax and:
- your income will significantly increase or decrease over the next year
- you have a loss which can be offset against your income
- you’ve gone from untaxed income like self-employment, where you must pay your own tax, to salary or wages where your tax is already deducted before you’re paid.
You can use the estimation option if you’re choosing to be a provisional taxpayer and did not have to pay provisional tax last year.
You can estimate what you think your residual income tax will be and pay that instead. If you do not think you’ll have any residual income tax to pay, you can estimate your provisional tax at $0.
If you estimate your residual income tax will be more than $60,000, your provisional tax will generally be paid in 3 instalments.
You can estimate your provisional tax at any provisional tax instalment date, or any other date up until the final instalment date.
Underestimating your provisional tax
When you use the estimation option, keep a close eye on your profits and estimate again if it looks like you'll earn more or less than you expected. You could be charged a penalty if your provisional tax estimate is too low compared with your actual residual income tax once you’ve filed your return.
You will be charged interest if your provisional tax estimate is less than your residual income tax once you've filed your return.
For more information, read our Provisional tax guide – IR289.