Quick answer
Terminal tax is the income tax still owing for a year once your return is filed and provisional tax payments are subtracted. For a 31 March balance date it's generally due on 7 February the following year, or 7 April if your tax agent has an extension of time. It's largest after a strong year on the standard option, because instalments were based on the previous, smaller year.
Key points
- Terminal tax = residual income tax for the year minus provisional tax already paid.
- Due 7 February after the tax year, or 7 April with a tax agent's extension of time.
- A strong year on the standard option usually means a large terminal tax bill.
- Estimate it in winter, not in January, so the cash is ready.
Terminal tax is the bill that settles the year. Your provisional tax payments were estimates of one kind or another; once your return is filed, the real figure is known and the difference becomes payable. For many owners it arrives on the first working day after a summer holiday. With a little forecasting it can be the least surprising bill of the year.
What exactly is terminal tax?
Your residual income tax (RIT) for a year is the income tax left after credits such as PAYE and withholding tax. Terminal tax is that RIT minus any provisional tax you’ve already paid for the same year. If you’ve paid more than the RIT, you get a refund instead.
| Year A (steady) | Year B (strong) | |
|---|---|---|
| Residual income tax for the year | $30,000 | $52,000 |
| Provisional tax paid (standard: prior RIT + 5%) | $29,400 | $31,500 |
| Terminal tax or (refund) | $600 | $20,500 |
Illustrative figures. Year B’s instalments were based on Year A’s RIT of $30,000 plus 5%.
The table shows the shape of the problem. In a growing business on the standard option, provisional tax lags a year behind actual profit, and the catch-up lands as terminal tax.
When is terminal tax due?
For a 31 March balance date, Inland Revenue generally expects it on 7 February after the end of the tax year. If you have a tax agent with an extension of time, the date usually becomes 7 April. When the date falls on a weekend, payment is due the next working day.
For the year ended 31 March 2026, that means 7 February 2027 or 7 April 2027. Keep in mind the overlap: early 2027 also brings a 15 January provisional tax instalment for the following year, and 7 April sits just before the 7 May instalment and the March GST return. Our business money calendar sets out the full sequence.
Why do good years produce big terminal tax bills?
Three reasons, all common:
- Standard-option lag. Instalments use last year’s RIT plus 5%. If profit jumps by 50%, instalments only rise by 5%.
- One-off gains. Selling an asset or landing an unusually large job lifts profit for the year without changing the instalments.
- First years in business. No provisional tax in year one means the whole first year’s tax can be terminal tax, landing alongside second-year provisional tax. See the second-year tax bill.
Does terminal tax apply to sole traders and companies alike?
Yes. Sole traders, partners, shareholders and companies all have residual income tax for the year, and any of it not covered by provisional tax becomes terminal tax. The difference is whose return it sits in. A sole trader’s terminal tax is personal and comes through their IR3. A company’s terminal tax belongs to the company, while a shareholder who took a salary without PAYE may have personal terminal tax as well. In a family business, that can mean two or three separate bills due on the same date, so map them together rather than one at a time.
How do you see it coming?
Don’t wait for your accountant to finish the return. A rough estimate in winter is far better than an exact figure in January:
- Look at year-to-date profit by October or November. Compare it with last year at the same point.
- Apply the tax rate. Most companies pay 28% of taxable profit; individuals pay on their own rate scale.
- Subtract provisional tax already paid or scheduled. The gap is your likely terminal tax.
- Start setting it aside weekly, in the same account as GST and provisional tax.
Illustrative example. A Whangārei building company had RIT of $35,000 last year and is on the standard option, so it is paying $36,750 this year. By November, management accounts suggest taxable profit of about $190,000 for the full year. At 28% that’s $53,200 of tax. The likely terminal tax is about $16,450, due 7 April with its agent’s extension. Setting aside about $830 a week from December covers it.
The estimation option, explained in the four provisional tax options, can shift some of that bill into the instalments if you prefer smaller surprises.
What happens if you can’t pay on time?
Unpaid terminal tax attracts late payment penalties, and, once any safe harbour protection ends at the year-end date, use-of-money interest. Inland Revenue’s advice is consistent: contact it early. An agreed instalment arrangement reduces penalties compared with paying off the debt informally. Our page on use-of-money interest explains how the interest side works.
Some businesses prefer to pay Inland Revenue in full and repay a lender over a set term, particularly when the bill is a one-off caused by a strong year. If that’s worth exploring, you can ask about funding without a credit check.
Turning a big bill into a planning tool
A large terminal tax bill is, in a sense, good news: it means the year was profitable. The aim is to make sure it doesn’t collide with the things that profit should be paying for, such as stock for a busy season, a vehicle or a new hire. Run your own numbers in the GST & provisional tax set-aside planner to see how the bill sits against your other tax dates.
Talking to us about it
If a strong year has left a big tax bill and a growth plan competing for the same cash, a planned facility can let you do both. We look at unsecured options for trading businesses and loans secured on residential or commercial property. There’s no credit check to enquire, your details aren’t sent around to other lenders, and a real person on our New Zealand team reads every enquiry. Please fill in the form as accurately as you can, so the first call can get straight to what’s realistic. See if you qualify.
Frequently asked questions
What date is terminal tax due for the 2025–26 year?
For a 31 March balance date, tax for the year ended 31 March 2026 is generally due on 7 February 2027, or 7 April 2027 if your tax agent has an extension of time for you.
What if 7 February falls on a weekend?
The due date moves to the next working day. In 2026, for example, 7 February fell on a Saturday, so Inland Revenue noted payments were due on 9 February.
Can I get a refund instead of terminal tax?
Yes. If your provisional tax payments exceed your residual income tax, you're due a refund, and Inland Revenue generally pays interest on overpaid tax unless you used AIM.
Can I pay terminal tax in instalments?
If you can't pay in full by the due date, contact Inland Revenue about an instalment arrangement. Agreed regular payments mean fewer penalties than paying informally without an arrangement.