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The ratio option is one option to calculate your provisional tax. It lets you align your provisional tax payments with your business cashflow. It also bases your provisional tax payments on a percentage of your GST taxable supplies.
Businesses whose income fluctuates during the year may benefit from this option.
The ratio option will not suit all businesses. We recommend that you:
You can use the ratio option to calculate your provisional tax if:
To use the ratio option you must meet all of the above criteria and let us know before the beginning of the income tax year.
We'll calculate the ratio percentage and let you know what this is before your first provisional tax payment due date.
If you choose to use the ratio option you must make provisional tax instalments every two months along with your GST. We'll send you a new GST and provisional tax return (GST103) for you to do this.
You can stop using the ratio option at any time. If you stop using it:
You won't be able to continue using the ratio option if:
If you choose to stop using the ratio option you must let us know by phone or mail.
If the ratio option is ceased after the first provisional tax instalment dates you're required to use the estimation option to calculate the provisional tax for the remainder of the year.
We'll calculate the ratio percentage for you by applying the following rule:
ratio percentage = [residual income tax from previous year ÷ GST taxable supplies from previous year] x 100.
We'll let you know your ratio percentage and any changes to it. Your ratio percentage may change from time to time as a result of assessments or reassessments of your GST or income tax for the previous year.
Each time a provisional tax instalment is due, your GST and provisional tax return (GST103) will instruct you to calculate your instalment amount by multiplying your ratio percentage by your GST taxable sales figure for the latest two-monthly period.
If you apply the ratio option correctly and pay the provisional tax calculated using the ratio option, you won't: