Welcome to tax pooling!
Are you tired of paying late payment penalties and interest to Inland Revenue? Tax pooling is the solution! It’s a simple and flexible way to pay provisional tax on time and avoid unnecessary charges.
Here’s how it works: you deposit any amount of money into a pool of funds held at Inland Revenue by a tax financing company (an intermediary) – think of this as a bank account. You can make payments at any time within 75 days after the final tax payment deadline. When tax is due, the amount is automatically transferred from the tax pool to your Inland Revenue tax account.
Why should you use tax pooling?
- Avoid late payment penalties and interest charged by Inland Revenue
- Spread your tax payments throughout the year
- The tax intermediary pays the right amount of tax at the right time on your behalf – you don’t need to pay Inland Revenue yourself
- Earn interest on your deposited funds
Is tax pooling legal?
Absolutely. There’s specific legislation set up for tax pooling and Inland Revenue provides detailed information here.
Is your money safe?
Definitely! The intermediary has a tax pool account set up with Inland Revenue and it’s administered by Guardian Trust. Guardian Trust arranges all payments and transfers of tax payments.
What’s the cost for tax pooling?
It’s completely free to sign up with an intermediary, and you only pay interest on the amounts you use, and at a rate lower than that charged by Inland Revenue.
Will Inland Revenue flag you for using tax pooling?
No need to worry. Using a tax financing company doesn’t indicate that you’re experiencing financial difficulty. It’s recognised that business cashflow ebbs and flows during the year, and having lump sums available at due dates isn’t always practical.
Can the tax payment be backdated?
Yes! Only for the current tax year, though. You can’t apply your tax pool payments to an amount owed five years ago, for example.
What happens if your tax return for the current year hasn’t been filed?
No problem. Once filed and assessed by Inland Revenue, you’ll know the amounts to pay on the due dates. As mentioned above, the tax pool will transfer the required funds as if they were paid on the due dates.
What if you’ve paid too much into the tax pool?
Don’t worry, you can benefit from this scenario!
- You can keep your funds in the tax pool to use for a future period (and you receive interest)
- You can ask for a refund
- You can ‘sell’ your excess pool balance to a taxpayer who has underpaid, at a higher rate of interest – this must be done via your intermediary
Is tax pooling available for other tax types?
Not yet. You may be able to use tax pooling if you made a voluntary disclosure to Inland Revenue to amend a return that doesn’t related to income tax (for example, GST, PAYE, FBT). If you need to pay more tax as a result of those reassessments, any shortfall could come from your tax pooling account.
How do you set up tax pooling?
It’s easy! Head to an intermediary’s website and get started. You can call or email them – they’ll be happy to help. Once you set up your account with a login and password, you can check the payments you’ve deposited, and amounts transferred to Inland Revenue on your behalf.
Even easier – let us help you! For a small fee ($150 +GST), we can organise it all for you, with Tax Traders, our go-to intermediary.
Where can I find an intermediary for tax pooling?
The more well-known companies offering this service are TMNZ, Tax Traders, and Taxi (new in February 2024 and offered through Tax Traders).
Type “Tax pooling NZ” into Google and you’re bound to find more!
Conclusion
Tax pooling is the perfect solution for keeping your cashflow steady throughout the year. Say goodbye to late payment penalties and interest, and hello to simple and flexible tax payments.
