Residual income tax (RIT) is the tax calculated on your taxable income, less the tax already deducted before you received the money (the most common example is PAYE on wages).
Provisional tax is for people having to pay more than $5,000 residual income tax. Provisional tax is paying tax for your current year in advance - in smaller amounts, rather than in one lump sum. It's usually based on your tax bill from the previous year, plus 5% or 10%.
Terminal tax is the final amount of tax to pay. Your total tax bill is worked out, then any provisional tax payments are deducted. If your provisional tax payments haven't covered the tax bill, then you'll need to top it up by paying the difference to Inland Revenue - this is terminal tax.
Sometimes a picture is worth a thousand words, so let's see how these taxes all fit together.
|Wages from ABC Limited||$15,000|
|Business income for the year||$48,000|
|Total Taxable Income||$64,500|
|Tax on Taxable Income||$12,370|
|Less tax deducted at source|
|PAYE on wages||$4,200|
|Resident Withholding Tax on interest||$99|
|Resident Withholding Tax on dividends||$80|
|Imputation Credits on dividends||$120|
|Total tax deducted at source||$4,499|
|Residual Income Tax (RIT) [$12,370 - $4,499]||$7,871|
|Less Provisional Tax paid||$7,500|
|Terminal Tax to pay||$371|
If your Provisional Tax is higher than Residual Income Tax, you've overpaid during the year and will receive a refund.