Provisional Tax vs Terminal Tax vs Residual Income Tax

RIT (Residual Income Tax) RIT is the amount of tax you have to pay on your income less any taxes already deducted at source (i.e. PAYE deducted from wages or RWT deducted from interest).

Terminal Tax

Terminal Tax is your RIT less any provisional tax paid. Most people have a standard 31 March balance date (i.e. your financial year runs from 1 April to 31 March) and if you are linked to a tax agent then terminal tax is due 7 April of the following year.

For example for the year ended 31 March 2014 your terminal tax will be due 7 April 2015.

If you are not linked to a tax agent (such as Campbell Tyson) then your terminal tax is due 7 February of the following year.

Provisional Tax

If your residual income tax (RIT) on your last income tax return was more than $2,500, you may have to pay provisional tax for the following year.

Provisional tax is not a separate tax but a way of paying your income tax as the income is received during the year. You pay instalments during the year based on what you/IRD expect your tax bill to be. The amount of provisional tax you pay is then deducted from your RIT at the end of the year and any difference is payable as terminal tax (or any overpayment is available to be refunded).

Provisional Tax can be calculated under three methods:

What is "Safe Harbour"?

A safe-harbour tax payer is an individual (not a Company or a Trust) who uses the standard method for provisional tax (as above) and has RIT for the current year of less than $50,000.

Safe-harbour effectively means that as long as you pay your provisional tax based on prior year RIT's (under the standard method) and meet your terminal tax obligations you will not be subject to use of money interest.