Your business benefits from tax pooling in NZ

Taranaki Business Advisory Associate Kylie Cronin is a huge fan of tax pooling. Here, she explains the benefits.

Time to read: 3 mins

Tax pooling is a platform for taxpayers to transfer tax between each other at the original dates that they were paid. So, if you’ve paid too much tax on a particular date and someone else hasn’t paid enough, you can sell them your credits for a gain in interest.

Tax pool intermediaries act as the middleman for that transaction so you’re not actually dealing with another taxpayer. It is all IRD-approved and as far as they’re aware, you’ve paid your tax on time. There are multiple tax-pooling intermediaries, but Baker Tilly Staples Rodway generally deals with Tax Management New Zealand or New Zealand Tax Traders. You can’t use tax pooling for all tax types, just income tax unless you’ve had a reassessment and in that case you might be able to use it for GST, FBT etc.

Reason number one that we love tax pooling is that it can smooth your cash flow. You can pay into the tax pool at any date that you choose. This is incredibly helpful for seasonal businesses because you can pay in when your cashflow allows. Once we file your tax return for the end of that year, we can shift the funds around by buying and selling that tax at the dates you need it, so as far as IRD are concerned, they’ve been paid when you were supposed to pay them.

It's also a great tool if you’re living in overdraft because overdraft interest rates are generally much higher than tax pooling rates. You’re better off leaving the cash in your overdraft and we’ll defer that payment as late as possible, then backdate the taxes to where you need them.

Reason number two that we love tax pooling is that it frees you from costly IRD penalties and interest. Your tax will be paid to Inland Revenue on the right dates, so you won’t incur any late payment penalties. Any interest that you do pay will go to the tax pool intermediary, which charges a much lower interest rate than IRD. On top of this, if you or any of your entities are late in paying provisional tax, the whole group could incur unnecessary interest, but if you use tax pooling, the group will be protected by “safe harbour” rules.

Reason number three that we love tax pooling so much is that you can actually benefit from paying too much tax. If you overpay your income tax to Inland Revenue – maybe you’ve had a worse year this year than last year – IRD generally don’t give you that tax back until you’ve filed your tax return. But if you pay into tax pooling, not only can you get the funds back sooner, you also earn interest on them (around one percent).

Reason number four that we love tax pooling: It’s way more flexible than just a simple installment arrangement with IRD. If you’ve got a huge tax bill, tax pooling has multiple financing options available. Some examples are: Lump sums at a future date, a fixed installment arrangement, an interest-up-front ability so that you can lock in that interest rate now, or a pay-as-you-go option, where you pay varying installments depending on your cash flow, which can be important for a seasonal business.

So those are the four main reasons we love it. If you think tax pooling can help you, get in touch with your local Baker Tilly Staples Rodway office and we can see what options are available for your business.

DISCLAIMER No liability is assumed by Baker Tilly Staples Rodway for any losses suffered by any person relying directly or indirectly upon any article within this website. It is recommended that you consult your advisor before acting on this information.

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