The Taxation (Tax Administration and Remedial Matters Act) has now been passed and makes a number of important changes to the tax pooling provisions. This article summarises the changes – please call us if you would like to discuss any points.
Tax Pooling Time Limit Extended
Previously tax pooling for the current tax year could only be made within 60 days of the terminal tax date for the year. This has been extended to 75 days.
Example – Clients with a 7 April 2012 terminal tax date will have up to 21 June 2012 to complete the purchase/transfer process.
Subject to certain rules tax pooling can still be used outside the 75 day terminal tax limit in cases of a re-assessment and voluntary disclosures – see further below.
Unlimited time for Corporates to Complete Tax Transfers of “Own Tax”
Where a tax pool deposit is made by the taxpayer or a company in the same group there is no time limit for requesting a transfer of tax.
Voluntary Disclosures – PAYE, ESCT, RWT, NRWT, FBT, GST etc
Previously tax pooling could only be made for voluntary disclosures where the Commissioner made a re-assessment of tax. This precluded the use of tax pooling for voluntary disclosures where there has been no initial assessment, eg in relation to RWT, or where a person did not realise they had to file an income tax return.
Now, a tax pooling deposit can be used to pay an increased amount of tax where a person makes a voluntary correction of a previously filed return for PAYE, ESCT, RSCT, RWT, NRWT, income tax, GST, FBT, further income tax, and imputation penalty tax.
Voluntary Disclosures – No Tax Return Filed
The Commissioner is also given discretion to allow a person to use a tax pooling deposit to pay an increased amount of income tax or RWT where they have not previously filed a return. There are a number of requirements that must be met before this discretion can be exercised.
Tax Purchases where the taxpayer has not yet filed their tax return
Up to now the Inland Revenue have delayed processing Tax Purchases until the relevant tax return has been filed. The Amendment Act removes this restriction. If the person has met their income tax filing obligations for previous years, and their provisional tax obligations for the current year then tax purchases should be processed without delay.
Deductibility of TMNZ Interest paid to acquire a deposit
The Amendment Act specifies that interest paid to acquire a tax pooling deposit is deductible in the year in which the deposit is transferred to meet the person’s tax liability, (that is, the year the transfer actually occurs, rather than the year the tax is deemed to be paid). This is consistent with the change to make UOMI on underpaid tax automatically deductible for all taxpayers.
Previously if a person made a request to use a tax pooling deposit to pay income tax they had flexibility to select an earlier effective date than required for income tax purposes. This allowed a company to remedy an imputation credit account deficit occurring some years before the request was made. The legislation has been tightened to provide that the effective date in such cases is no earlier than the P1 date for the tax year in question.