The chief executive of New Zealand’s largest tax pooling intermediary, Tax Management NZ (TMNZ), has applauded the New Zealand Government for its decision to be more lenient on how it will apply interest on provisional tax in the future.
Prime Minister John Key announced today that Inland Revenue (IRD) will no longer subject businesses using the standard uplift method to interest if they underpay at their first and second provisional tax dates, provided they pay the income tax they owe at their last provisional tax date.
It also plans to increase the safe harbour threshold for both businesses and individuals to $60,000.
The trade-off is there would be no interest receivable if businesses overpaid their income tax. They would be liable for IRD interest if they missed or did not pay provisional tax.
TMNZ CEO Chris Cunniffe (pictured right), whose organisation manages the provisional tax payments for more than 50 percent of New Zealand’s largest companies and holds with IRD more than $5 billion of tax in trust in its tax pool account, says New Zealand businesses will be better off under this system.
“We probably see more provisional tax than anyone else with the exception of IRD,” he says.
“What we have traditionally seen is large taxpayers have always paid more money to IRD when they make their first provisional tax payment to mitigate the risk of incurring interest in the future. We think this behaviour will change in the future.”
Change to the safe harbour threshold means hundreds of thousands of people would be removed from the interest regime, he says.
Cunniffe was also pleased the government saw a role for tax pooling under the new system.
Tax pooling is an alternative to method to paying IRD that gives businesses with cashflow constraints greater flexibility around when and how they pay their upcoming provisional tax payments.
It will also provide value to those who use the estimation method due to volatility or experience seasonality, says Cunniffe.
“To the extent the system is imperfect, tax pooling will help take away the rough edges and deliver flexibility and a better outcome to businesses at no downside.”
Cunniffe says TMNZ remains committed to reinventing itself in the face of the government’s expected changes to the New Zealand tax system.