What is provisional tax and who has to pay it in New Zealand?

Provisional tax is how New Zealand sole traders pay income tax in advance throughout the year rather than in one lump sum after filing their IR3. It helps avoid a large tax bill at year end. You are required to pay provisional tax if your residual income tax (RIT) — the tax payable after deducting PAYE, withholding taxes, and other credits — was more than NZ$5,000 in the previous tax year. For the 2025/26 year, provisional tax using the standard uplift method is generally 105% of your previous year's RIT (or 110% if your prior year RIT was over NZ$60,000), split over three instalments. If you prefer to estimate your actual income, you can use the estimation method instead — but be careful, as underestimating by more than certain amounts triggers use-of-money interest from IR.

• Required when previous year residual income tax (RIT) > NZ$5,000
• Three instalments: 28 August, 15 January, 7 May
• Standard method: 105% of prior year RIT (or 110% if >NZ$60,000)
• Estimation method available but risks use-of-money interest
• Does not apply to your first year of self-employment