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Income tax and provisional tax

If you own a business or are self-employed, you’ll pay tax in one lump sum or several instalments. This way of paying income tax is called provisional tax. For contractors, tax can also be deducted from your pay.

If Inland Revenue tells you to pay provisional tax, set money aside.

If Inland Revenue tells you to pay provisional tax, set money aside.

The first instalment may have to be paid soon after you’ve filed your tax return for the previous tax year.

Start putting aside money for your tax bill as soon as income starts coming in. This will help ease the cash flow in your second year, when you might need to pay provisional tax for that year as well as the tax for your first year in business.

You have to file your return for the year ending 31 March by 7 July — unless you have an extension, or use an accountant or a tax agent (they may get an extended deadline).

Once you've worked out what you owe, the due date of your first tax bill for the year ending 31 March will be 7 February the following calendar year (or it may be extended to 7 April if you have an accountant or tax agent).

Put money for your tax bill in a high-interest account.

Put money for your tax bill in a high-interest account.

The interest may be enough to cover expenses such as tax agent fees or your ACC levies.

Tax for contractors

Tax on schedular payments used to be called withholding tax. It means you may have tax taken from your pay at source, similar to pay as you earn (PAYE).

You must pay schedular payments — or be taxed as you earn — if you are a:

  • contractor hired and paid through a recruiter or other labour hire business 
  • self-employed contractor previously under schedular payment rules
  • seasonal and temporary worker
  • company in the horticultural, agricultural, and vinicultural industries.

Other contractors can choose to have tax deducted if the payer agrees.

All contractors can pick the rate to have tax deducted. Complete the new tax rate notification form (IR330C). On this form you pick the rate to have tax deducted from your pay. New Zealand tax residents can pick any rate from 10 per cent up to 100 per cent.

Tax rate notification for contractors form (IR330C) (external link) — Inland Revenue

You’ll still be responsible for paying your own:

  • ACC earners' levy
  • student loan repayments.
Use Inland Revenue’s new estimation tool to decide your tax rate.

Use Inland Revenue’s new estimation tool to decide your tax rate.

This will help you avoid getting a tax bill at the end of the year.

Tax rate estimation tool for contractors (external link) — Inland Revenue

Filing your return

Your income tax return is due on 7 July each year, unless you have an extension. If you have an accountant or tax agent, they may also get an extension.

  • Sole traders file an individual income return (IR3).
  • If you're in a partnership, each partner needs to file an individual IR3 return and your business needs to do a partnership income tax return (IR7).
  • If you're set up as a company, your business needs to file a companies income tax return (IR4).

You’ll also need to include either a copy of your business’s financial records, or a form summarising your income and expenses (IR10).

You can file all your returns online, or download the forms you need from the Inland Revenue website.

Forms and guides (external link) — Inland Revenue

If you’re worried you won’t be able to pay your tax bill in full and on time, call Inland Revenue on 0800 377 772 to see what support might be available.

If you’re worried you won’t be able to pay your tax bill in full and on time, call Inland Revenue on 0800 377 772 to see what support might be available.

If you just don’t pay, you’ll be charged interest and penalties.

Claiming expenses

Include the total amounts for all your different business expense types in your return — you don't have to provide the receipts to Inland Revenue unless requested to do so, but you do need to keep them for at least seven years.

Depreciation

Depreciation is a way of claiming back some money on the assets you buy for your business that cost more than $500 and have a life span of 12 months or more. It's a bit like claiming expenses, but instead of claiming against the total cost of the item, you claim for the amount it depreciates each year — that is, the value lost through wear and tear or becoming out of date.

Depreciation (external link)  — Inland Revenue.

Watch Inland Revenue’s income and provisional tax video

Video transcript (external link)

Owing less than $2,500 of income tax to Inland Revenue

If you have to pay less than $2,500 of income tax, you'll just need to make one payment at the end of the tax year — you don't need to worry about provisional tax.

Note: “Residual income tax” is another term for tax to pay.

Owing more than $2,500 of income tax to Inland Revenue

If you have to pay more than $2,500 of income tax (tax to pay is sometimes called residual income tax, or RIT), you'll need to pay provisional tax in instalments during the next tax year, as well as your tax for the previous tax year.

The amount of provisional tax you pay is based on your expected profit for the year. There are three ways to calculate it.

  • Standard — the default option. Your last year's tax to pay + 5% (or your tax to pay from two years ago plus 10%).
  • Estimation — you estimate what you think your tax bill will be for the year. This can be a good option if you expect your income to be lower than last year.
  • Ratio — worked out as a percentage ratio of your GST return. This can be a good option if your income fluctuates a lot.

You'll usually pay provisional tax in three instalments, in August, January and May. If you file GST six-monthly, you'll pay two instalments of provisional tax, in October and May. If you choose the ratio option for provisional tax, you'll pay in six instalments.

When you file your income tax return and calculate your tax for the year, you deduct the provisional tax you paid earlier. If your provisional tax paid is more than your RIT, you'll get a refund and may receive interest on the difference. In some cases, if your provisional tax paid is less than your RIT, Inland Revenue may charge you interest on the amount owing and a penalty.

Provisional tax guide (external link) — Inland Revenue

If you have a tax advisor, ask which option for paying provisional tax suits you best - standard, estimation or ratio.

If you have a tax advisor, ask which option for paying provisional tax suits you best - standard, estimation or ratio.

Due dates and payments

If you're filing your return yourself, you need to:

  • file your return by 7 July
  • pay your residual income tax bill by 7 February the next year
  • pay your provisional tax instalments on the dates confirmed by Inland Revenue
  • contact Inland Revenue early if you think you may have trouble meeting any of these due dates.

Note: “Residual income tax” is another term for tax to pay.

If you use a tax agent, you need to:

  • check when they need all your tax information by
  • pay your residual income tax bill by 7 April the next year
  • pay your provisional tax instalments on the dates confirmed by your tax agent or Inland Revenue.

Tax due date calculator (external link)  — Inland Revenue

Provisional tax payment dates (external link)  — Inland Revenue

Making payments

You can pay:

  • online via internet banking
  • online via credit card (a service fee applies)
  • by posting a cheque.

Make a tax payment (external link)  — Inland Revenue

Avoid these common pitfalls to stay on track with your income tax:

  • Failing to set money aside for your tax bill — you don't want to end up with a big bill and no way to pay it.
  • Not filing or paying your tax on time — you'll be charged a penalty if you file late, and interest on any overdue payments.
  • Not keeping records of your income or expenses, or not keeping them long enough — this is required by law.
  • Calculating schedular payments on the amount after GST, not before.

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