Savings of $4m-plus: Clients find tax pooling is well worth the plunge

If you read an article about a group of people in essence reaping more than $4 million, you might assume they’d had a Lotto win. 

Time to read: 3 mins

But this article isn’t about a Lotto windfall – instead it covers a real-life savings win for Baker Tilly Staples Rodway clients through use of our main Tax Pooling intermediary.

In April, New Zealand marked the 20-year anniversary since tax pooling rules were introduced. The rules enable taxpayers to pay into the pool of a registered intermediary when they like rather than on a set date to Inland Revenue. The money is then paid into the taxpayer’s Inland Revenue account once their tax position has been finalised.

There are a handful of tax pooling intermediaries approved by IR, among them our main pooling partner, Tax Management New Zealand (TMNZ). Our nationwide offices have worked with TMNZ to save our clients more than $4 million in late payment penalties and (UOMI) use of money interest compared with the tax being paid directly to Inland Revenue. If other tax pooling intermediaries are included the total is significantly higher.

Tax pooling lets taxpayers buy income tax at an earlier date, saving on interest and late payment penalties imposed by Inland Revenue on late payments.

“It’s ingrained in our process as being good accountantslooking to save our clients money wherever we can – and tax pooling is one way to do that. It saves on interest and penalty costs, which can add up to substantial amounts – and only takes a few minutes to arrange,” says Baker Tilly Staples Rodway Wellington partner Matt Bonner.

Tax pooling is ideal if, for example:

  • You want to pay a lower interest rate on underpaid tax than Inland Revenue would charge, or receive a higher interest rate for overpaid tax.
  • You’re short on cash to cover your tax bill.
  • You need flexibility to defer payment of provisional and terminal tax to a time of your choosing. This is helpful if you receive most of your income at one point in the year, for example, during seasonal work.
  • There’s uncertainty around your tax bill.
  • Your taxable income might be significantly different to the prior year.
  • You need your funds in the short-term to help grow your business, pay for working capital, purchase assets or repay more expensive debt.
  • You have access to an investment opportunity that would make better use of your funds.
  • You missed a tax payment by mistake.

There are also other benefits to tax pooling, beyond flexibility and savings. For example, tax pooling intermediaries charge a lower interest rate than Inland Revenue when tax is not paid, and that rate is usually less than short-term lending facilities. Therefore, it’s a great tool if you’re using a business overdraft to pay your tax.

Taxpayers who have underpaid (or not paid) their income taxes can purchase tax at the required dates, using overpayments that other taxpayers have paid into the pool. Tax pooling intermediaries charge interest to under-payers and pay interest to over-payers. Not surprisingly, small-to-medium sized businesses usually buy tax and bigger corporates usually deposit tax into the pool, says Matt. “They’re the ones that are going to sell their overpaid tax and get a better return versus leaving cash in the bank.”

A further advantage is that unlike overpayments of income tax to Inland Revenue (which generally aren’t returned until you’ve filed your annual tax return), excess funds deposited into a tax pool can be returned to you much sooner.

Tax pooling is primarily available for Income Tax but can potentially be used for amounts due on GST, PAYE, FBT and DWT if you’ve had reassessments on those tax types.

If you’d like to learn more or use tax pooling, contact your usual Baker Tilly Staples Rodway accountant

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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