Provisional tax NZ 2026/27: who pays, the options and due dates

Provisional tax is how people without PAYE on all their income pay their tax during the year instead of in one lump after it. It is not a separate tax: every dollar of it counts toward your income tax for the same year. You come into it when last year's residual income tax was more than $5,000. Most people use the standard option, which sets this year's payments at last year's figure plus 5%, so if your 2025/26 residual income tax was $9,000, your 2026/27 provisional tax is $9,450, paid as three instalments of $3,150.

Residual income tax and the $5,000 threshold

Everything in provisional tax hangs off one number. Inland Revenue's provisional tax guide (IR289) defines residual income tax, or RIT, as the tax on your taxable income less PAYE deducted and any other tax credits you are entitled to, except Working for Families. In plain terms, it is the tax that was not already covered by deductions at source.

The rule is that you pay provisional tax for a year if your RIT for the previous year was more than $5,000. For 2026/27, the test year is 2025/26. If a PIE square-up added tax to your bill, Inland Revenue counts that too.

That makes the threshold easy to cross for a sole trader and easy to stay under for an employee. Here is how 2026/27 profit translates into RIT for a self-employed person with no other income, worked out with this site's calculator:

For an employee with a side business, PAYE already covers the salary, so only the tax on the side profit counts toward RIT. Withholding tax on schedular payments and RWT on interest are credits too, which is why someone whose income is mostly taxed at source may never reach the threshold.

The standard option: last year plus 5%

The standard option asks nothing of you except last year's return. Your provisional tax for the year is your previous year's RIT plus 5%, split into three equal instalments. The IRD standard option page sets out the one exception: if you have a tax agent with an extension of time and last year's return has not been filed by the time an instalment is due, you use the RIT from two years ago plus 10% instead. Without an extension of time it is always last year plus 5%, even if you file late.

Inland Revenue's own example in IR289 shows the rounding. A previous RIT of $10,130 plus 5% is $10,636.50, and IRD shows the provisional tax as $10,636, with the cents dropped. Our calculator does the same:

The final instalment works as a catch-up: it is the year's total less what you have already paid, which is why an odd cent lands on the last one.

The standard option is safe but blind. It knows nothing about this year. If your income grows, the instalments will be too low and the rest arrives as a bill after you file. If your income falls, you can end up paying more than you owe and waiting for the refund. That is the trade-off the other three options exist to solve.

Instalment dates for 2026/27

These dates apply to a 31 March balance date, which is the usual year end for individuals. If a date falls on a weekend or public holiday, a payment on the next working day counts as on time.

As of 10 November 2026, the first standard instalment has passed and the next is 15 January 2027. Any tax still owing for 2026/27 after the instalments is due on 7 February 2028, or 7 April 2028 if you have a tax agent with an extension of time.

Estimation, ratio and AIM in outline

Three other options let your payments follow this year rather than last.

Estimation. You estimate this year's RIT yourself and pay it on the standard dates. You can re-estimate as often as you like up to the final instalment. The catch is interest: on estimation, Inland Revenue charges interest from each instalment date on any shortfall against your actual RIT, even if you paid your estimate in full and on time. IR289 shows a taxpayer who, for 2025/26, estimates $59,371.50, pays two instalments of $19,790.50, then re-estimates to $65,000 and pays $25,419.00 at the third. Estimation suits a year that is clearly going to be lower than last, and you need to be careful with it in a year that is going up.

Ratio. Your payments are a percentage of your GST sales. The percentage is last year's RIT divided by last year's GST taxable supplies, rounded down to one decimal place, and you pay it on each two-monthly period's sales over six instalments. You need to have been GST registered for the whole previous year and part of the year before, file GST monthly or two-monthly, have RIT over $5,000, not be a partnership, and choose the option before the year starts. Paid on time, it carries no interest during the year.

AIM, the accounting income method. You use AIM-capable accounting software, which works out tax on your profit as you go. You pay only when you are in profit, on your GST dates, and it is available to businesses with turnover under $5 million.

All four options lead to the same place. After the year ends you file your IR3, your real RIT is worked out, and any difference between that and what you paid is either refunded or due.

The first-year double hit

New businesses usually pay no provisional tax in their first year, because the test looks at the year before, when they were probably on PAYE. That feels like a break. It is really a delay, and Inland Revenue is blunt about it: your first year in business is not tax free.

Take Mere, who leaves her job and starts contracting on 1 April 2026 with no tax withheld. Her 2025/26 RIT was $5,000 or less, so she pays no provisional tax in 2026/27. She makes a $70,000 profit. Here is what follows, with figures from our calculator:

Between late August 2027 and early February 2028 she pays $22,474.50, and by May 2028 the total is $27,101.50: a year and a half of tax in roughly nine months. Her ACC invoice for 2026/27 sits on top of that.

The defence is to treat year one as if provisional tax applied. Put aside a share of every invoice from the first month. Voluntary payments during the first year are possible, and IR289 notes they may earn an early payment discount. Paying something toward year one before 7 February 2028 also shrinks the lump that lands next to the instalments.

There is also a special interest rule for people moving from a job into business. If your RIT is $60,000 or more, it was $5,000 or less in each of the previous four years, and you moved from employment to a taxable activity during the year, Inland Revenue may charge interest on a reduced number of instalments.

Interest and late payment penalties

Use-of-money interest, or UOMI, is how Inland Revenue evens things up when you pay too little or too much. The rules depend on your option:

• Standard option, RIT under $60,000: interest only starts from the day after your end-of-year tax is due. Pay your standard instalments on time and a shortfall costs nothing until then.
• Standard option, RIT of $60,000 or more: interest runs from the day after the final instalment on any difference, as long as the earlier instalments were paid in full and on time.
• Estimation: interest from each instalment date on any shortfall against your actual RIT.
• Ratio, paid on time: no interest during the year.

Interest is not charged or paid when the underpayment or overpayment is $100 or less. It is simple daily interest, not compounding. From 16 January 2026 the rates are 8.97% charged on underpayments and 2.25% paid on overpayments, down from 9.89% and 3.27% from 8 May 2025. Note the gap: an overpayment earns much less than an underpayment costs.

Late payment penalties are separate. Miss an instalment and Inland Revenue adds 1% the day after the due date, then 4% seven days later. IR289's example: a $7,600 instalment due 7 May attracts $76.00, then $307.04, so $7,983.04 is owing after a week.

This guide is general information, not tax advice. If your income is rising fast, is very uneven, or is close to the $60,000 RIT line, an accountant can help you choose between the options.

Questions people ask

Do I have to pay provisional tax in 2026/27?

Yes, if your residual income tax for 2025/26 was more than $5,000. Residual income tax is the tax on your taxable income less PAYE and other credits, apart from Working for Families.

How is standard provisional tax worked out?

It is your previous year's residual income tax plus 5%, with the cents dropped, paid in three instalments. A 2025/26 RIT of $9,000 gives $9,450 for 2026/27, or $3,150 on each of 28 August 2026, 15 January 2027 and 7 May 2027.

What if I paid too little provisional tax?

The balance is due after you file, on 7 February 2028 for 2026/27 (7 April 2028 with a tax agent's extension). On the standard option with RIT under $60,000, interest only starts after that date.

What interest does Inland Revenue charge on provisional tax?

From 16 January 2026, 8.97% a year on underpayments and 2.25% on overpayments, as simple daily interest. Nothing is charged or paid on differences of $100 or less.

Is my first year in business free of provisional tax?

Usually there is no provisional tax in year one, but the whole year's tax falls due after you file, close to your first instalments for year two. Setting money aside from the start avoids the double hit.