September 25, 2023

Tax Pooling

AUTHOR

Claire Bryant

We recently chatted with our friends at Tax Traders to delve into the world of Tax Pooling, exploring how it works, who can benefit from it, and its many advantages. If you’re ready to take control of your tax payments and potentially boost your returns, read on to discover how Tax Pooling could be a great solution.

What is Tax Pooling?

Tax pooling is the framework Inland Revenue established in 2003 to lessen the burden of the provisional tax regime for taxpayers. Essentially, taxpayers trade their payments with each other and everyone wins – taxpayers reduce their interest costs or increase their return – and Inland Revenue gets their tax paid simply and on time.

Instead of making provisional tax payments directly to your account at Inland Revenue, you deposit your provisional tax payments into a tax pooling trust account at Inland Revenue held by a trustee and operated by an Inland Revenue-approved tax intermediary, like Tax Traders.

Once actual profit is known at the end of the year, if you have underpaid your provisional tax, you can buy tax to make up the shortfall with no penalties or interest from IR. If you have overpaid your provisional tax, any surplus tax you have paid can either be sold at a higher interest rate than paid at IR or refunded within a matter of days. You can also borrow at competitive interest rates allowing you to pay your provisional tax when it suits you.

Who should use it?

Most of New Zealand’s large corporates and 35,000 SMEs use tax pooling across the country annually. Tax pooling is a more cost-effective and straightforward way to handle your provisional tax payments, especially compared to other funding forms such as credit cards or overdraft facilities.

If you enjoy flexibility and paying when it suits you, tax pooling could be your perfect option!

What are the benefits of using Tax Pooling?

Using tax pooling allows you to take control of the cashflow for what is likely one of your biggest expenses. A few of the other benefits are:

  • Late payment penalties are eliminated
  • Plan your tax payments in a way that suits your business cashflow
  • Returns on overpaid tax can significantly exceed the Inland Revenue rate
  • Refunds on demand and paid within 3-5 working days (subject to AML documentation)
  • Reduce interest charges for underpaid tax by up to 33%
  • The ability to swap payments between payment dates for optimal tax savings

Let's chat

If you would like to learn more about Tax Pooling, please contact our team, and we can chat through your options.