FIF income and provisional tax: when IRD wants paying in advance

If your IR3 leaves you owing more than $5,000 after all credits (your residual income tax, or RIT), you become a provisional taxpayer for the following year. Instead of one bill after year-end, IRD collects the next year's tax in three instalments in advance. FIF income is a classic trigger, because nobody withholds tax on it during the year: unlike your salary, the whole liability lands in the wash-up.

This guide covers how FIF income tips people over the line, what actually changes when it does, and the choices you have once you're in.

Why FIF income trips the wire

Salary and wages arrive with PAYE already deducted, so they rarely create a year-end bill. FIF income is the opposite. Nothing is withheld at source except the foreign tax on your dividends, which usually covers only part of the New Zealand tax. The rest is payable when you file.

Rough numbers: a $400,000 portfolio produces $20,000 of FDR income. At a 33% marginal rate that's $6,600 of tax, less maybe $2,000 of foreign tax credits, leaving around $4,600 of RIT from the shares alone. Add any other untaxed income (rental profit, side-contract work, interest that was taxed at too low a rate) and the $5,000 line is closer than most investors expect. A first year over the $50,000 FIF threshold, a strong market year under CV, or a growing portfolio can each push you across.

💡 Good to know: RIT is measured after credits. Foreign tax credits, imputation credits and PAYE all reduce it, so claiming everything you're entitled to does more than trim this year's bill. It can keep you out of provisional tax entirely.

What changes when you cross $5,000

For the following year, IRD expects provisional tax in three instalments. With a standard 31 March balance date they fall due on:

• 28 August
• 15 January
• 7 May

The default is the standard option: your last year's RIT plus 5% (or the year before's plus 10%, if you haven't filed yet), split into thirds. There's nothing to file and nothing to decide; myIR shows the amounts.

The first provisional year has a cash-flow sting worth planning for. You'll pay the previous year's terminal tax and the new year's instalments over the same months, roughly a double year of tax across twelve months. It's the price of moving from paying in arrears to paying as you go, and it only happens once, but it catches people who spent the money.

The $60,000 safe harbour

If your RIT stays under $60,000 and you pay the standard-option instalments in full and on time, IRD charges no use-of-money interest even if your actual bill turns out higher. You simply pay the shortfall as terminal tax on the usual date (7 February, or 7 April with a tax agent). For most FIF investors this is the comfortable path: pay the uplift and true up later without interest.

Miss an instalment or pay short, though, and the protection falls away, with interest running from the missed date. If cash is the problem, part-paying on time beats skipping and catching up.

When to estimate instead

The standard option looks backwards, and FIF income doesn't. It swings with the market and with your method choice: a CV year during a rally can double your RIT, and the uplift then assumes next year looks the same. If the market has gone flat, you'd be prepaying tax on income you won't have.

You can switch to estimating your provisional tax, and re-estimate any time up to the final instalment. The trade-off is real: estimation drops the safe harbour, so an estimate that proves too low exposes you to use-of-money interest on the difference. Estimate when the evidence is solid (you've sold down the portfolio, or FDR this year is arithmetically capped well below last year's CV spike), not on optimism.

A quieter alternative: since FDR income is 5% of your 1 April opening value, you can calculate most of next year's FIF income in April, eleven months before the return is due. Run the numbers early and the January and May instalments stop being guesses.

In short

• More than $5,000 of residual income tax makes you a provisional taxpayer for the following year.
• FIF income arrives untaxed at source, so it flows straight into RIT. Foreign tax credits pull it back down.
• Standard option: last year's RIT + 5%, paid in thirds on 28 August, 15 January and 7 May.
• Under $60,000 of RIT and paid on time, the safe harbour means no interest, just a terminal tax true-up.
• Estimate down after a one-off spike year, but only with the numbers to back it, because estimating forfeits the safe harbour.
• Budget for the first provisional year: terminal tax and instalments overlap.

Common questions

What is residual income tax?

The tax left owing on your return after all credits: PAYE, foreign tax credits, imputation credits and the rest. It's the figure the $5,000 provisional threshold and the $60,000 safe harbour both test.

Does FIF income really count toward the $5,000?

Yes, fully. FIF income goes on your IR3 like any other income and is taxed at your marginal rate. Since nothing is withheld on it during the year, nearly all of the tax on it becomes RIT, less whatever foreign tax credits apply.

What are the provisional tax dates?

For a standard 31 March balance date: 28 August, 15 January and 7 May. Terminal tax for the previous year is due 7 February, or 7 April if you use a tax agent.

My FIF income was a one-off spike. Do I have to prepay at that level?

No. The standard uplift assumes a repeat, but you can estimate your provisional tax instead, and re-estimate up to the last instalment. Just be sure of the numbers: estimation gives up the safe harbour, so underestimating attracts use-of-money interest.

Do I pay this year's bill and provisional tax at the same time?

In the first provisional year, effectively yes. The previous year's terminal tax and the new year's instalments fall in the same twelve months. It's a one-off compression, but it's the part that most needs budgeting for.

Sources: IRD's provisional tax pages, including the standard option and interest on provisional tax.