- Provisional tax is a legal requirement for you to pay your income tax in advance, hence it is a prepaid income tax based from your last tax year’s income tax liability.
- You are required to pay in three instalments within the current tax year. The first instalment is Due on 31 March, the second instalment is 31 October.
- The amount of provisional tax payable in current tax year directly relates on your income tax liability of the previous tax year. That amount is then divided by three and each amount is required to be paid at the end of each quarter of the next year.
For e.g. I have a business. My tax liability for year 2018 was $9,000 which means this will be my provisional tax for 2019. Divide $9,00 by 3 (three quarters of the year) and I get $3,00 as provisional tax payable for each quarter of 2019. Therefore, I will pay first instalment of provisional tax of $3,000 before or on 31 March 2019, second instalment of provisional tax of $3,000 before or on 31 July 2019 and third instalment of provisional tax of 3,000 before or on 31 October 2019
The advantage or benefit of this requirement is that when taxpayer file its/his/her income tax return for 2019 on 31 March 2020, and there is income tax liability returned, these provisional tax payments (paid in 2019) will be (automatically) transferred immediately to pay that liability. Any excess 2019 income tax liability payable will then be paid on 31 March 2020. But if no less 2019 income tax liability assessed in 2020, those payments will remain as credit for the next income tax year liability.
Example: In 2020, the 2019 income tax return is filed on 20 March 2020 and income tax self-assessed is $10,000. The three provisional tax payments of $3,000 each quarter, total $9,00 paid, will be fully credit against this 2019 income tax liability of $10,000 and the $1,000 balance of income tax liability payable is required to be settled in full on 31 March 2020. In addition on this same date of 31 March 2020, taxpayer is required to pay the 1st instalment on 31 March 2020 ($1,000 for terminal income tax and $3,333.33 for 1st instalment of 2020 prov. tax) The 2nd instalment of $3,333.33 will be payable by 31 July 2020 and 3rd instalment of $3,333.34 on 31 October 2020.
(and the cycle continues as such every tax year)
- If your income tax liability is less than 500%, you are required to pay the full amount rather than in 3 instalments, in the first payment which should be in March.
- For help in Paying your provisional tax, please contact our Taxpayer Services Division.