Depending on a company's balance date, this is generally payable in 2 equal instalments on 1 June and 1 December in the year the company's income is earned. The provisional tax payable is based upon the company's previous year’s terminal tax. Companies can estimate their assessable income to base their provisional tax on, however, if the company estimates lower than the previous year’s assessable income, and lower than 80% of its actual assessable income, it will become liable for additional tax of 10% on the amount of underestimated provisional tax.
Provisional tax is not payable if the company's terminal tax does not exceed $2,000 in the previous year, unless the company's current year’s terminal tax is $20,000 or more.
ABC Ltd has a 31 December balance date and has terminal tax to pay of $17,800 to pay for its 2013 year. Unless ABC Ltd estimates its provisional tax payable for 2014, $8,900 will be payable as a 1st instalment of provisional tax on 1 June 2014 and a further $8,900 2nd instalment will be due on 1 December 2014.
XYZ Ltd has a 31 December balance date and has terminal tax to pay of $1,800 to pay for its 2013 year. XYZ Ltd's income increased significantly in 2014 and its terminal tax was $25,000. Unless ABC Ltd estimated its provisional tax payable for 2014, $12,500 would have been payable as a 1st instalment of provisional tax on 1 June 2014 and a further $12,500 2nd instalment was due on 1 December 2014. In this case, whilst the company's 2013 terminal tax was less than $2,000, its 2014 terminal tax was above $20,000, therefore it was subject to provisional tax in that year.