Terminal Tax vs Provisional Tax: What’s the Difference?

If you’re a business owner or self-employed in New Zealand, you’ve probably heard the terms terminal tax and provisional tax. But what do they actually mean—and how do they affect your wallet?

Let’s break it down in plain English.

What Is Terminal Tax?

Terminal tax is the final tax payment for a financial year. It’s the amount you still owe after subtracting any tax you’ve already paid (like provisional tax or PAYE).

• It’s based on your actual income for the year.

• If you didn’t pay enough tax during the year, you’ll need to pay the balance as terminal tax.

• If you paid too much, you’ll get a refund.

Due Date: Usually 7 April following the end of the tax year (or 7 February if you don’t use a tax agent).

What Is Provisional Tax?

Provisional tax is tax you pay in advance for the current year, based on your previous year’s tax amount.

• You pay it in instalments throughout the year (usually 3 payments).

• It helps spread the cost of your tax bill so you’re not hit with a big lump sum later.

• You only need to pay provisional tax if your tax owed from the previous year is over $5,000.

Typical Payment Dates:

• 28 August

• 15 January

• 7 May

How Is Provisional Tax Calculated?

Most people use the standard method:

• Take your last year’s tax amount owed.

• Add 5% to it.

• Divide that total into three equal payments.

Example:

• Last year’s tax owed: $10,000

• Add 5% = $10,500

• Pay $3,500 on each due date

If your income changes during the year, you can switch to the estimation method and update your expected tax accordingly.

Why Do People Get Caught Out?

Many new business owners face the “second year tax shock.” In your first year, you don’t pay tax until the end. But in your second year, you might have to pay:

• Terminal tax for year one

• Provisional tax for year two

That’s two years of tax in one go—so it pays to plan ahead.

Final Thoughts from Count Me In Limited

At Count Me In Limited, we know tax can feel like a headache—but it doesn’t have to. We’re here to help you understand what you owe, when you owe it, and how to plan ahead so there are no nasty surprises.

Need help working out your tax payments or choosing the best method? Let’s chat! Reach out to us today and we’ll guide you through it with calm, clear advice tailored just for you.