Provisional Tax – how does it work?

In this article, we’ll break down how provisional tax works, explain who needs to pay it, and show how small business owners can reduce financial pressure through proper planning and support.

What is Provisional Tax?

Provisional tax spreads your tax obligations across the year, making it easier to manage cash flow and avoid a large year-end payment. As a result, it helps you plan better for your financial future.

How does Provisional Tax work?

Your provisional tax payments reflect your expected profit for the year. Typically, you calculate this amount based on the tax liability from your previous year’s return, known as residual income tax (RIT). Therefore, your payments are linked to how your business performed last year.

Do I have to pay Provisional Tax?

You must pay provisional tax if your last return showed a tax liability of more than $5,000 (or $2,500 before the 2020 return). However, even if you don’t meet the threshold, you can still choose to make provisional payments. This option allows you to spread your obligations across the year, easing cash flow and reducing the stress of a large, year-end lump sum.

Is this your first year in business?

First-year provisional tax payments can be challenging because you may need to pay last year’s income tax alongside your first instalment of next year’s provisional tax. Fortunately, we can help ease this burden with the right tax plan.

If you’re self-employed or part of a partnership, you may qualify for a 6.67% discount on your first year’s income tax. This incentive encourages early tax payments and reduces financial strain before your first provisional tax instalment.

Let us know if things change

Since circumstances can change quickly in business, keeping your tax plan up to date is essential. If anything changes, we can adjust your plan to ensure your taxes remain manageable. Staying in touch helps us keep you on track.

Need help managing your tax commitments?

If you’re unsure where to start, don’t worry—we’re here to help. Reach out today, and let’s create a tax plan that works for you.

Together we can achieve more.