The provisional tax system is working, but that doesn’t mean accountants are happy with every part of it.

That was one of the clearest messages from a recent survey of 334 accountants across New Zealand, conducted by CA ANZ and Tax Management New Zealand (TMNZ). The findings were explored further in the webinar Under Pressure: What New Zealand accountants really think about provisional tax.

There was plenty of experience behind the responses. More than half of those surveyed were partners or directors, while 54% had spent more than 20 years in public practice.

Overall, respondents gave the fairness of the provisional tax system 6.2 out of 10. For John Cuthbertson FCA, CA ANZ NZ Tax and Financial Services Leader, that score tells an interesting story.
“The system’s not broken, but there are some pain points in the system that people would like to see fixed if possible,” he said.

And timing is one of them.

More than half of respondents said standard instalment dates don’t align with when businesses actually earn their income. The 15 January P2 date stood out, with 77% saying it was particularly difficult for clients to manage. 

It is easy to see why. For many businesses, the payment falls just after the Christmas break, when income may have slowed and other obligations are also competing for cash. “It’s not a great time to be looking for money,” John said.

The problem can be even more obvious for businesses with seasonal or variable income.

“Provisional taxes are blunt instruments. It’s not designed around seasonality,” he said. 

The survey backs that up: 78% said managing provisional tax for clients with variable or seasonal income posed some degree of challenge.

The P3 crunch

Then there is the pressure at the other end of the tax year.

Three-quarters of respondents reported peak provisional tax workloads in April and May. Practitioners can move from completing prior-year tax returns straight into year-end work, GST returns and P3 reviews, leaving little breathing room during an already busy period. 

Getting P3 right also matters. The survey highlighted concerns about the estimation method, including the risk of penalties and use-of-money interest when estimates prove inaccurate. Pay too little and the client may face use-of-money interest; recommend too much and the client has unnecessarily tied up cash.

The administrative burden adds up too. More than two-thirds (68%) of respondents reported spending up to two hours per client each year on provisional tax administration. For practitioners managing dozens, or even hundreds, of provisional tax clients, that can quickly become a significant workload.

From compliance to advice

But the survey was not simply a list of frustrations. It also raised a bigger question: could provisional tax become less of a compliance exercise and more of an opportunity to talk to clients about their businesses?

At present, much of that work remains reactive. On average, 78.2% of clients are managed reactively around provisional tax. Yet 31% of accountants said provisional tax conversations already lead to broader advisory discussions often or regularly.

Technology could help shift that balance. During the webinar, John talked about taking out mundane and repeatable processes, while Matt Edwards, CEO of TMNZ, discussed how technology could help accountants spot problems earlier and provide a higher level of service without significantly increasing the cost of doing so.

As John put it, “the more we can automate the mundane and the routine, the better.” 

And change appears likely. Seventy-three percent of respondents expect their provisional tax management practices to change over the next two to three years. Increased use of software or automation was the most commonly anticipated change, followed by greater reliance on real-time accounting data. 

That doesn’t necessarily mean the provisional tax system needs to be pulled apart and rebuilt. 

For practitioners, John pointed to some practical steps: take another look at the P3 workflow, make better use of technology, and move towards more year-round conversations with clients.

The findings will also help inform CA ANZ's advocacy. CA ANZ and TMNZ intend to share the research with Inland Revenue and use it to initiate further discussions on the pain points identified by practitioners, including payment timing, flexibility and concerns around the estimation method.