Provisional Tax Method Comparison Calculator

Worked example: Aroha compares her options

Aroha is a self-employed graphic designer, GST-registered and filing two-monthly. Last year her residual income tax (RIT) was $28,000, filed on time, so her standard uplift factor is 105%: $28,000 × 1.05 = $29,400.00 for the year, split into three instalments of $9,800.00 each, due 28 August, 15 January and 7 May.

This year one of her two retainer clients ended, so she estimates taxable income will drop to $95,000, with no PAYE deducted elsewhere. On the 2026/27 brackets, tax on $95,000 is $21,227.50, which is also her estimated RIT, or $7,075.83 per instalment, well below standard uplift but only safe if the estimate holds.

She also qualifies for the ratio method: her prior year GST taxable supplies were $280,000, giving an illustrative ratio of $28,000 ÷ $280,000 × 100 = 10.00%. Applied to her projected current year supplies of $220,000, that is a ratio total of $22,000.00, split across six GST-aligned payments of $3,666.67 each.

Standard uplift costs the most ($29,400.00) but is fully protected by the $60,000 safe harbour, since her estimated RIT is well under that ceiling. Estimation is cheapest ($21,227.50) but risks interest if she has under-estimated. The ratio method ($22,000.00) sits in between and tracks her real sales automatically, without needing a precise profit forecast, a sensible middle path for someone whose income has genuinely dropped.

Why comparing methods matters

Provisional tax applies once your prior year's residual income tax (RIT), the tax owed after PAYE and other credits, exceeded $5,000. Most taxpayers default to standard uplift, and for many that is the right choice: simple, no forecasting, strong interest protection. But it is not always the cheapest or safest option, and the right method depends on whether your income is stable, growing, or falling, whether you are GST-registered, and how confident you are forecasting your own numbers.

The four methods in detail

Standard uplift

You pay 105% of your prior year's RIT if that return was filed before your first instalment, or 110% of the RIT from two years prior if not, common for tax agent clients with a filing extension. No forecasting is needed, and paying on time gives strong protection through the $60,000 safe harbour below. The main downside is overpaying when income has genuinely dropped.

Estimation

You pay tax on your own estimate of this year's income instead of an uplift on last year's figure, the right call when income has clearly fallen. The risk shifts to you: an under-estimate attracts use of money interest on the shortfall from each instalment date. Revising your estimate upward as the year progresses limits how much interest accrues.

Ratio option

You pay a fixed percentage of your GST taxable supplies (sales) alongside every GST return, generally six payments a year for two-monthly filers. Inland Revenue calculates and notifies your specific percentage. Broad eligibility: RIT between $5,000 and $150,000 for the relevant prior year, GST-registered and trading the whole of that year, monthly or two-monthly filing, and not a partnership. Because payments move with actual sales, it suits seasonal or fluctuating turnover, with similar interest protection to standard uplift when applied correctly.

AIM (Accounting Income Method)

AIM calculates tax from your actual accounting profit each period via approved software such as Xero or MYOB, paid alongside your GST return. Because it tracks real, current profit, there is no meaningful interest risk when used correctly. It suits variable-income businesses with disciplined bookkeeping, but is impractical without compatible software.

Two thresholds people confuse: $5,000 and $60,000

The $5,000 threshold decides whether you must pay provisional tax at all: at or below it, you pay nothing through the year and simply settle terminal tax. The $60,000 safe harbour is separate and only matters once you are already on standard uplift. It protects you from use of money interest on any underpayment, provided you paid the uplift amount on time and your actual RIT for the year is under $60,000.

This catches growing businesses off guard. If your prior year RIT was $80,000, filed on time, your standard uplift total is $80,000 × 1.05 = $84,000.00. If your business grows and actual RIT comes in at $95,000, the $11,000.00 shortfall is not protected, since $95,000 is over the $60,000 ceiling, and Inland Revenue can charge interest back to your first instalment date, despite you following the method correctly. Businesses expecting RIT above $60,000 should consider a voluntary top-up, the ratio method, or AIM instead of relying on standard uplift alone.

Which method suits which situation

Stable or modestly growing income under the $60,000 ceiling suits standard uplift best: simplest and safest. A genuine, confident-forecast drop in income suits estimation, trading some interest risk for lower instalments. GST-registered businesses with seasonal or fluctuating sales who meet the rules get a self-correcting middle path from the ratio method. Businesses with tight, real-time accounts in compatible software get the least guesswork and risk from AIM.

Who this calculator is for

This calculator is for self-employed people, contractors, small business owners, and their accountants or tax agents who are choosing or reviewing a provisional tax method for the year ahead. It is equally useful for someone whose income has changed significantly and wants to see whether switching methods would help, and for someone simply wanting to understand why Inland Revenue's default standard uplift figure is what it is.

What this calculator assumes

• The $5,000 threshold and 105%/110% uplift factors reflect current 2026/27 Inland Revenue rules.
• Estimation uses the 2026/27 PAYE brackets applied to the taxable income you enter (net profit, not gross turnover).
• The ratio percentage shown is illustrative, not the figure Inland Revenue would calculate and notify you of.
• AIM cannot be calculated without live accounting data, so its figures are descriptive.
• Results are indicative only. Confirm your obligations and eligibility with Inland Revenue or a tax agent.

Frequently Asked Questions

What are the four ways to pay provisional tax in New Zealand?

Standard uplift (105% or 110% of last year's RIT, in three instalments), estimation (tax on your own current-year estimate), the ratio method (a percentage of GST taxable supplies each period, for eligible GST-registered businesses), and AIM (tax on actual accounting profit through approved software).

How does the standard uplift method work?

You pay 105% of your prior year's residual income tax (RIT) if that return was filed before your first instalment, or 110% of the RIT from two years prior if not, commonly the case for tax agent clients with a filing extension. It splits into three equal instalments, generally due 28 August, 15 January and 7 May.

When should I use the estimation method instead of standard uplift?

When this year's income is clearly lower than last year's. You pay tax on your own estimate rather than an uplift on last year's higher figure. The risk is use of money interest if the estimate turns out too low.

Who is eligible to use the ratio method?

Broadly, being in business and GST-registered for the whole prior year, an RIT between $5,000 and $150,000, monthly or two-monthly GST filing, and not a partnership. Inland Revenue calculates and notifies your actual ratio percentage.

What is the AIM method and who is it for?

AIM pays tax on your actual accounting profit each period via approved software such as Xero or MYOB. It suits fluctuating-income businesses with regular bookkeeping, since interest does not apply when the software is used correctly.

What is the difference between the $5,000 threshold and the $60,000 safe harbour?

The $5,000 threshold decides whether you must pay provisional tax at all. The $60,000 safe harbour is separate: on standard uplift, paid on time, with actual RIT under $60,000, no interest applies on any shortfall.

Can I switch provisional tax methods during the year?

Yes, for example to estimation if income drops partway through. Switching to or from the ratio method or AIM needs an application to Inland Revenue and generally aligns with a GST period.

What happens if I choose a method and end up underpaying?

Inland Revenue charges use of money interest on the shortfall from the relevant due date. Standard uplift is safest if your final RIT stays under $60,000. Estimation and the ratio method carry more risk if figures were understated.