As of 2020, if you have to pay income tax of more than $5,000 at the end of any tax year, you will have provisional tax obligations for the following tax year.
You will pay two instalments of provisional tax, based on what you expect your tax at the end of the year to be.
If your balance date is 31 December then your instalment dates are 1 June and 1 December of each year that you are obligated to pay Provisional Tax.
Provisional tax example 1:
Citizen Smith has a 31 December balance date and has income tax to pay for 2020 of $5000.00. Citizen Smith will have Provisional Tax obligations for the 2021 period of $5000.00. This is paid in 2 instalments.
Instalment 1
Due Date: 1 June 2020
Amount: $2500.00 (50% of the full obligation $5000.00)
Instalment 2
Due Date: 1 December 2020
Amount: $2500.00 (50% of the full obligation $5000.00)
Provisional tax example 2:
ABC Ltd has a 31 December balance date and has income tax to pay for 2020 of $20,000.00. ABC Ltd will have Provisional Tax obligations for the 2021 period of $20,000.00. This is paid in 2 instalments.
Instalment 1
Due Date:1 June 2020
Amount: $10,000.00 (50% of the full obligation $20,000.00)
Instalment 2
Due Date: 1 December 2020
Amount: $10,000.00 (50% of the full obligation $20,000.00)
Updated: 21.08.2020 (PD)
