Provisional tax

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Provisional tax is tax paid in instalments during the year on income that does not have tax deducted at source — including rental profit — rather than in a lump sum after year end.

When it applies

Generally where your residual income tax for the previous year exceeded a threshold. The threshold has changed over time — confirm the current figure with IRD or your accountant.

Most investors reach it once the portfolio produces meaningful profit, or after a taxable property sale.

The methods

• Standard — based on last year's tax plus an uplift
• Estimation — your own forecast, with risk of use-of-money interest if you underestimate
• Ratio — linked to GST turnover, for eligible taxpayers
• AIM — accounting income method, calculated through approved software

The trap investors hit

A taxable property sale can push you into provisional tax for the following year, based on that one-off income. You then face instalments calculated on an income you are not repeating. Estimation or a re-estimate can address this, with advice.

Use-of-money interest applies to underpayments and can be significant.

Common misunderstanding

Provisional tax is not an extra tax. It is the same tax, paid earlier. The cashflow shock is real, though, particularly the first year.

Plan for it before the sale, not after. Investors regularly spend the proceeds of a taxable sale and then face a provisional tax obligation they had not budgeted for.

Related terms

Sources

• IRD — Provisional tax

Last reviewed: 1 August 2026 · General information only, not tax advice.

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