Explained: Every New Zealand Income Tax Term You Need To Know

23rd July 2025
Stephen Ryan

It often feels like accountants speak a different language. Here's a breakdown of some of the key tax terms accountants use to help you translate jargon into decision. 

Basics

• Provisional Tax
  Often shortened to Prov Tax, it's an advance payment of income tax made in instalments during the year if your Residual Income Tax (RIT) is more than $5,000. It spreads your tax burden across the year, instead of one big lump sum.

• Provisional Tax Instalments
  For a typical tax payer using either the Standard or Estimation option with a March balance date, there are 3 scheduled payment dates due on the 28th of August (P1), 15th of January (P2), and the 7th of May (P3). If you're registered for GST on a 6 monthly basis, then you have 2 instalments due on the 28th of October and 7th of May. If you don't have a March balance date, log into myIR, open the income tax tile, and select 'View' provisional tax to see your due dates.

• Terminal Tax
  The final income tax amount due for a tax year after subtracting any provisional tax already paid. Essentially a wash-up payment if you haven't paid enough provisional tax. If you've paid too much provisional tax, you won't have a terminal tax liability - you'll get a refund!

• Residual Income Tax (RIT)
  Your total income tax liability after deducting tax credits and the like. If your RIT exceeds $5,000, you're subject to provisional tax rules. If it exceeds $60,000, then you're outside of Safe Harbour.

For example, say a company earns a profit of $1m from business and interest revenue and has $10,000 of RWT attached to the interest. That company's income tax liability would be $280,000, but it's RIT would be $280,000 - $10,000 = $270,000.

• Use of Money Interest (UOMI)
  Interest charged by Inland Revenue if you underpay or pay late, or amounts they pay your if you've overpaid. Inland Revenue does not want to be your financier, which is reinforced by their interest rates which you can find by clicking here. 

You can use Tax pooling to minimise UOMI. UOMI not a penalty, its a charge for the time value of money. 

Advanced

• Safe Harbour
  A de minimis for smaller tax payers (RIT under $60k) which means that if you're using the standard uplift method, you won't get charged UOMI if you've had a much more profitable year than last year provided that you pay your terminal tax in full by the due date. 

You can still get charged penalties for short or late paying your provisional tax instalments, so don't think that you can just ignore your provisional tax obligations if you've in safe harbour, but it does mean you can increase your profit by more than 5%, stay on the standard uplift method and not get charged interest.

• Filing Date Management
  Since the Standard Uplift Method is based on your latest filed tax return, you can file your tax return on a strategic date to take advantage of an advantageous year's RIT. 

For example, if 2 years ago you had a down year, last year was a great year, and this year is looking like a down year, you can file last year's return on the 16th of January (the day after P2 is due) so that P1 and P2 for this year are based on 2 years ago +10%, instead of last year +5%.

• Tax Pooling
  A service offered by intermediaries where essentially, if you haven't paid enough tax on time, you can buy it off somebody else who paid too much for the cost of the tax + interest (but the interest is less than Inland Revenue charges). It's treated as a transfer, so it's as if you paid it on time, so it reduces the overall interest you pay + eliminates penalties. Great for cashflow management.

• Tax Pooling Intermediary
  An approved provider (e.g. TMNZ, Tax Traders) that holds pooled tax payments in a trust account, matching them to Inland Revenue obligations when you're ready. 

Different Provisional Tax Methods

• Standard Uplift
  The default method to calculate provisional tax, the simplest, and by far the most common for taxpayers with RIT below $60k. If you've filed the latest tax return, then it'll be based of that return's RIT + 5%. If you haven't filed your previous year's tax return, then it'll be the year before's RIT + 10%. 

It's not suitable for tax payers who have over $60k RIT and fall outside of safe harbour, unless your income tax liability is going to be within 5% of last year's.

• Estimation (formal)
  Allows taxpayers to estimate their current year’s tax and pay provisional tax based on this forecast. More flexible, but can trigger UOMI and penalties if underestimated. With this method you notify Inland Revenue what your estimate is. 

• Estimation (informal)
  It's the same as above, but you don't actually tell Inland Revenue what the estimate is, you just pay the estimated amount. To be used with caution and if you have good data. Inland Revenue is in the dark, so will send out automatic letters if they think you're not paying enough based on the information they have. 

• Accounting Income Method (AIM)
  A real-time calculation method where small businesses use accounting software to calculate and pay tax based on actual profits throughout the year. Ideal for volatile or seasonal income. 

• GST Ratio Method
  Calculates provisional tax based on a ratio of GST turnover. Suitable for GST-registered businesses with consistent turnover patterns. 

Need Help Navigating Provisional Tax?

At Step Ahead Accounting, we specialise in guiding NZ business owners and investors through the complexities of provisional tax. Whether it’s Tax Pooling support, Estimation calculations, or Filing Date Management, we build tailored, Inland Revenue compliant plans that reduce risk and optimise cashflow.

Click here to get in touch today!