Not many people are happy to pay provisional tax, however, provisional tax helps you to manage your income tax. You can pay it in 3 instalments (May, August and Jan) during the year instead of a lump sum at the end of the year.
You’ll have to pay provisional tax if your income tax liability was more than $5,000 at the end of the year.
Example – Standard option (Your provisional tax equals your last year’s residual income tax plus 5%).
Profit before tax for 2020: $70,000
Tax on this income is calculated as follows:
Income up to $14,000 @ 10.5% $1,470Income $14,001 – $48,000 @ 17.5% $5,950Income $48,001 – $70,000 @ 30% $6,600Total tax on $70,000 $14,020
2020 provisional tax payable is $15,422
Payable in three instalments:
28 August 2020 $5,14115 January 2021 $5,1417 May 2021 $5,140
Still not clear? Please contact customer support team (firstname.lastname@example.org) or your assigned accountant for further details and/or clarification.