Provisional Tax: Standard or Ratio Method?

The financial year-end is nearly upon us, which means it's time to start thinking about year-end taxes.

If you're a provisional taxpayer and have been in business for more than a full financial year while being registered for GST, you may have the option to pay your provisional tax using the Ratio Method.

What is the Ratio Method?

Great question! Instead of making fixed provisional tax payments based on last year’s income, the Ratio Method allows you to pay tax based on a percentage of your actual sales (taxable supplies) each GST period.

That means when business is booming, you pay more; when it's quieter, you pay less.

For businesses with fluctuating or seasonal income, this method can provide much-needed cash flow flexibility—helping you avoid overpaying during slow months and underpaying during busy ones.

Who can use the Ratio Method?

To be eligible, you must meet all of the following criteria:

• You’ve been in business and GST-registered for the whole of the previous tax year and part of the tax year before that.

• Your residual income tax (RIT) for the previous year (2020 or later) is more than $5,000 but no more than $150,000.

• You file GST returns monthly or two-monthly.

• You are not a partnership.

Should you consider it?

If your income is consistent throughout the year, the standard provisional tax method may be just fine.

However, if your cash flow fluctuates, the Ratio Method could be a game-changer, ensuring you only pay tax based on what you're earning in real-time.

The catch?

You need to opt in before the start of your income year—so if this sounds like a good fit, now is the time to act!

Need help deciding?

Contact the team at Campbell Tyson to discuss whether the Ratio Method is right for your business.