Insights – tax pooling shows economy steady

Insights – tax pooling shows economy steady

Insights – tax pooling shows economy steady Aaron Ooi

umbrellaBusiness results have been steady over the Christmas period, according to the January tax deposits made through TMNZ.

However, they may not have lived up to earlier growth expectations, says Chris Cunniffe, CEO of Tax Management New Zealand (TMNZ).

There are financial advantages to tax pooling, which lets businesses make provisional tax payments or receive funds through an Inland Revenue account set up by an approved tax intermediary.

Tax payers must estimate how much income tax they will need to pay at the end of the financial year and pay in three equal instalments.

But with fluctuating incomes, it can be difficult for businesses to predict their financial position in advance.

They can progressively adjust the amounts. But a better way is to use a tax pool as businesses can offset the high use of money interest the IRD charges when taxpayers get it wrong – either by over or under-estimating their provisional tax.

The amount of provisional tax being paid into the tax pool can be a financial barometer that indicates whether company profits are rising or falling. With more depositors than any other intermediary, Tax Management NZ (TMNZ) can gain very real insights as to the profitability of the financial sector in general.

15 January 2014 was the second provisional tax payment date for New Zealand’s March balance date companies – covering most of the small and medium enterprises, and some of the larger companies.

By this time of the year, most companies have a reasonable idea of their full year income – and tax – position, and make payments into the TMNZ tax pooling account to match it.

At the first provisional tax date in August 2013, tax deposits were up on the previous year. While some of this can be attributed to the tax pooling market increasing, excluding new clients, there was still an overall growth of 10 percent over the prior year.

This indicates an optimistic forecast for the income year ahead.

However, deposits in January are lower than in August.  This reflects an initial optimism has been tempered by some real results although at a similar level to last year. However, this can all change at the final provisional tax payment in May where often the actual results for the year cause quite an increase.

In November, TMNZ reported record levels of deposits from June balance date taxpayers, who are generally larger corporates.

Cunniffe says: “We won’t be able to tell until March, their second provisional tax date, if they have also been over-optimistic… or whether the economic forecasts for small and large businesses are differing.”

The number of new clients using the TMNZ tax pool accounted for over 20 percent of the total uplift of the pool. This reflects the wider adoption of tax pooling by small and medium-sized enterprises, as it becomes better known and accepted as best practice in New Zealand.

As the largest tax pooling intermediary in New Zealand with more depositors than any other, TMNZ can gain insights as a bellwether for the financial sector in general.