Working capital solution amid timber shortage
For builders wanting to ensure they have enough materials to complete the jobs they have scheduled over the coming months amid the current timber shortage, there’s a source of funding available to them that they may have overlooked if they require working capital.
It’s their provisional tax payments.
And a service called tax pooling – which is offered by an approved commercial provider such as TMNZ – provides a way for them to use the money set aside for Inland Revenue (IR) for more pressing needs.
It lets them pay their tax when it suits them, without facing any consequences from the taxman.
We can’t see the wood for the trees
The supply of wood to meet New Zealand’s domestic demand is under pressure.
Estimates suggest there is a five to 10 percent shortfall in supply. Various factors have contributed to the shortage.
However, the abrupt announcement by Carter Holt Harvey – one of New Zealand’s largest processors, manufacturers and suppliers – to cut structural timber supplies to some merchants has caused further panic, as it has come at a time when the building industry is frantically busy.
Indeed, planning ahead and shoring up supply in the short term have become even more important.
There are reports that some builders with working capital available to them have been wisely stockpiling timber in warehouses since last November.
Provisional tax is a source of working capital
However, what happens if someone wants to follow their lead yet does not have, or cannot access, the funds to pay for the supplies they need?
Well, here’s the thing – they do have working capital available to them. They just might not realise it because, at first glance, it seems such an unlikely source.
On 7 May, IR is expecting many builders with a 31 March balance date to pay their final instalment of provisional tax for the 2020-21 income year.
Most would never dare not to pay the taxman on time, for they will run the risk of incurring steep interest and late payment penalties. The latter are charged as follows:
- One percent the day after the tax amount was due.
- An additional four percent if the tax amount (including late payment penalties) remains unpaid after seven days.
However, given the uncertainty of the current timber shortage, is handing provisional tax over to IR the most productive use of those funds? If there was some way to hold off making this payment, would it not make better business sense to use the money set aside for tax to plan ahead to ensure there are enough materials on hand to keep you going and your customers happy?
After all, having a limited supply of timber in reserve makes it difficult to complete jobs on time (or at all). You don’t want to be caught short – especially if you have plenty of work in the pipeline and know you will have the money to pay the taxman later.
Defer 7 May provisional tax – pay when it suits you, without the consequences
Tax pooling offers a solution.
For an upfront fee, you can free up cashflow by financing your 7 May provisional tax payment for up to 13 months with TMNZ.
You don’t have to worry about incurring IR interest and late payment penalties under this arrangement. Approval is guaranteed and no security is required.
Ahead of 7 May, you would pay TMNZ an upfront finance fee and TMNZ would make a date-stamped tax deposit into IR account on your behalf.
The upfront finance fee is based on the tax amount required and the date in the future you wish to pay. You have the option to defer this payment up until mid-June next year.
At the agreed upon date in the future, you would pay TMNZ the core tax amount.
TMNZ would then arrange for the date-stamped tax deposit it made into its IR account on 7 May to be transferred to your IR account.
IR would treat it as if you paid on time once it processes this transaction. This wipes any IR interest and late payment penalties showing on your account.
Get in touch if you have any questions. We're happy to help.
Commissioner’s discretion for tax pooling
A provision within legislation allows taxpayers to use tax pooling for certain income tax or RWT voluntary disclosures where no return has been previously filed.
This is known as Commissioner’s discretion.
And it’s worth seeking if a taxpayer satisfies all relevant criteria (see below), as settling these underpaid tax types through an approved tax pooling provider such as TMNZ can result in notable interest savings. The interest we charge can be significantly lower than Inland Revenue (IR).
To use tax pooling for historical income tax and other tax types, there generally needs to be a notice of reassessment issued by IR.
However, section RP17B (9) Income Tax Act 2007 stipulates that the Commissioner’s discretion found in RP17B (10) of the Act may be available in situations where a voluntary disclosure for income tax or RWT is made and a return for that tax type has not previously been filed.
The criteria for Commissioner’s discretion
That said, there are three conditions a taxpayer seeking Commissioner’s discretion to use tax pooling funds to settle income tax and RWT obligations must meet.
They are as follows:
- The increased amount arises as a result of an event or circumstance beyond the person’s control; and
- The person has a reasonable justification or excuse for not filing the return by the required date; and
- The person has an otherwise good compliance history for two income years before the income year in which the voluntary disclosure is made.
A taxpayer must satisfy all three requirements for the Commissioner to exercise their discretion.
This ensures that in exercising discretion she is satisfied that each occasion of non-compliance is not a deliberate act or a continuation of failures because of the taxpayer’s inadequate or poorly applied internal controls.
We recommend you refer to the examples 12 and 13 (pages 44 and 45) of the Tax Information Bulletin Vol 23, No 8, October 2011 to get a sense of the scenarios where IR will allow or decline a request for Commissioner’s discretion.
Applying for Commissioner’s discretion
The process is straightforward.
An application asking the Commissioner to exercise their discretion to use tax pooling funds can be made in writing.
Be sure to include the taxpayer’s name and IR number in this correspondence.
Outline the details of the case in a few paragraphs. We recommend splitting this information under the following headings:
- Background information. Include information about the taxpayer and nature of their business. It should also contain contextual information that you deem relevant, such as historical business relationships, personal circumstances, and relationships with other/historical accountants.
- The increased amount arises as a result of an event or circumstance beyond the person's control. Include detailed (and chronological) events or factors that have occurred throughout the period in question that provide further contextual explanation as to how the liability has arisen and not been declared until now, and how this was beyond the taxpayer’s control.
- The person has a reasonable justification or excuse for not filing the return by the required date. Include any details that show the client has not been purposefully negligent.
- The person has an otherwise good compliance history for two income years before the income year in which the voluntary disclosure is made. Include details that support a good prior history. It’s important to show this occurrence is out of the ordinary and therefore worthy of consideration.
TMNZ has an email template available should you require this.
Requests asking the Commissioner to exercise their discretion can be sent to taxpooling@ird.govt.nz
TMNZ is here to help
If you’d like further information on Commissioner’s discretion or wish to discuss a particular scenario, please get in touch.
Taxing times: Are you facing a cashflow crisis in April and May?
Tax represents cash and for all businesses, cash is king – especially in April and May.
After all, Inland Revenue (IR) is expecting two tax payments over these months.
The first is due tomorrow (7 April). That’s called terminal tax. If you did not pay enough tax during the 2019-20 income year, you will be liable to pay the remaining balance to settle your liability for the year by this date.
A month later, businesses with a 31 March balance date will pay their final instalment of provisional tax for the 2020-21 income year.
Both have the potential to cripple cashflow in April and May if not dealt with accordingly.
That’s why it’s important to have a plan and know your options.
What to do and things to know
Pay the terminal tax first. It is the oldest debt, and you will have IR’s debt collection team hot on your tail if you don’t.
In terms of the provisional tax due on 7 May, you will need to figure out what to pay.
What do you expect your yearly profit was? Did you pay sufficient provisional tax over the year? Those are questions you will need to ask yourself given this payment falls due after your income year has ended.
A safe harbour from IR interest applies to taxpayers who expect to have an income tax liability of less than $60,000 and pay all instalments of provisional tax during the 2020-21 income year on time and full using the standard uplift method. Standard uplift is the default method if you did not choose to use another calculation option.
This means no IR interest is payable on underpayments (or received on overpayments) until after the taxpayer’s terminal tax date. For the 2020-21 income year, this will be 7 April next year.
Many smaller taxpayers will benefit from using the safe harbour provision.
However, if you expect your income tax liability for the 2020-21 income year is going to be $60,000 or more – and you have paid all provisional tax instalments prior to 7 May on time and in full using the standard uplift method – you will need to pay the final balance to settle what you owe for the year to avoid incurring IR interest from 7 May on any shortfall.
How we can assist with terminal and provisional tax
Tax Management NZ (TMNZ) can help you manage your terminal and provisional tax payments.
Terminal tax
If you notice IR interest showing on your account in relation to the terminal tax due on 7 April, we offer a way to reduce this cost.
As an IR-approved tax pooling provider, we can apply backdated tax paid to IR on the date it was originally due against your 2019-20 income tax liability.
You make a payment directly to TMNZ comprising the core tax amount plus our interest. We then arrange for the tax you require to be transferred to your IR account.
The interest you pay TMNZ is significantly cheaper than what IR charges for underpaid tax.
Once IR processes this transaction, it will treat it as if you paid on time. This clears any IR interest and late payment penalties showing on your account.
You have up to 75 days past your terminal tax date to settle your 2019-20 income tax obligations with TMNZ.
Provisional tax – defer payment until June 2022
TMNZ can also assist with 7 May provisional tax if cashflow is a problem.
In the event you cannot or do not wish to pay on this date, you can enter an arrangement with us to pay your tax at a time that suits your business, without having to worry about late payment penalties. You would have up to 13 months to pay your 7 May provisional tax payment with TMNZ.
TMNZ makes a date-stamped deposit into its IR account on your behalf on 7 May and you pay us later.
You have the option of paying the full amount at a future date of your choosing or paying what you owe in instalments. TMNZ transfers the date-stamped tax deposit from its IR account to your IR account as and when we receive your payment(s).
The tax department treats it as if you paid on 7 May once it processes this transfer, eliminating late payment penalties.
Again, our interest cost is much cheaper than what IR charges for missed or underpaid tax.
Please get in touch if you have any questions about tax pooling. We’re happy to help.
Partnership with ATAINZ
March 29, 2021 — TMNZ today announces a partnership with The Accountants and Tax Agents Institute of New Zealand (ATAINZ). The partnership will advance TMNZ's ambition to accelerate the adoption of tax pooling solutions amongst taxpayers who would benefit from genuine provisional tax flexibility. In addition, TMNZ is announcing plans to commence offers and opportunities via the ATAINZ membership.
ATAINZ members will be able to look forward to the collaboration between TMNZ and ATAINZ. Starting from Q2 2021, ATAINZ members will have available tax pooling training, collateral options, and an ATAINZ point of contact at TMNZ.
Richard Abel, Chairperson of ATAINZ said: “Having been a user and supporter of tax pooling through TMNZ for a number of years, we’re excited to formalise an agreement with TMNZ for all our members. Signing the partnership with TMNZ affirms our commitment to being recognised as the voice of small-medium businesses (SME) in New Zealand. Tax pooling presents a cashflow solution that more should be aware of.”
Neil Bhattacharya, Head of Client Services at TMNZ said: “ATAINZ is a progressive organisation that is growing quickly and TMNZ is looking forward to partnering with them for the next 3 years and beyond. We feel strongly that tax pooling is a key cashflow tool for SMEs and a perfect match for ATAINZ clients looking for cashflow options.”
About ATAINZ
The Accountants and Tax Agents Institute of New Zealand (ATAINZ) exists to promote the welfare and professional development of its members and to represent members' interests in New Zealand. It is unique in the New Zealand tax and accounting market because of its grassroots contact with members.
Terminal tax isn’t due until 7 April – so why's IR already charging interest?
Just because a terminal tax amount for the 2019-20 income year is not due and payable until 7 April does not mean Inland Revenue (IR) is not already charging interest.
Why is this happening, you may be asking?
There could be several reasons. The method used to calculate your provisional tax payments, your income tax liability for the year, or whether you underpaid or failed to pay an instalment on time and in full can all be factors.
However, to understand why that might be happening, one needs to understand the different interest rules that apply for provisional taxpayers.
Below we explain how they work for those who used the standard uplift or estimation methods to calculate their payments during the 2019-20 income year.
We also cover the somewhat unfair rules that apply for new provisional taxpayers in their first year of trading because these often catch people out.
Standard uplift method
Please refer to the table below.
| If your income tax liability for the year is… | And you paid… | Then… |
| Less than $60,000 | All uplift instalments on time and in full or had no obligation to pay provisional tax for the year. | IR interest should only apply from your terminal tax date if you fail to pay by then the final balance required to satisfy your liability for the 2019-20 income year. |
| $60,000 or more | The uplift instalments on time and in full at all instalment dates prior to the last one.
Any final balance remaining to settle what is owed for the year at the date of the final instalment. |
IR interest should only apply from the date of your final instalment if you fail to pay by then the remaining balance to satisfy your liability for the 2019-20 income year. |
But what happens if you did not pay an uplift instalment on time or in full?
In this situation, the following rules will apply.
When provisional tax is underpaid or paid late at an instalment date prior to the final one for the 2019-20 income year, IR will charge interest on the lesser of:
- The uplift payment due, minus any amount paid in relation to that instalment; or
- The actual income tax liability for the year divided by the number of instalment dates for the year, minus any amount paid in relation to that instalment.
At the date of the final instalment, IR will also charge interest on the remaining balance owing to settle your liability for the year.
Estimation method
For those who used or switched to the estimation method at any time during their 2019-20 income year, IR may be charging interest as far back as the date of the first provisional tax instalment if you did not pay enough tax to satisfy your actual liability.
Interest will be charged based on the following: The income tax liability for the year divided by the number of instalments payable for the year, minus any amount paid in relation to that instalment.
New provisional taxpayers
A different set of rules apply to those in their first year of trading whose income tax liability is $60,000 or more.
That’s because they will be deemed to be a new provisional taxpayer.
A taxpayer must meet certain criteria to be considered a new provisional taxpayer. This criteria differs for individuals and companies/trusts.
For the 2019-20 income year, an individual is a new provisional taxpayer if they satisfy ALL of the below:
- Their income tax liability for the year is $60,000 or more.
- Their income tax liability in each of the four previous tax years was $2500* or less; and
- They stopped receiving income from employment and started to receive income from a taxable activity during that tax year.
A Company/trust is a new provisional taxpayer in the 2019-20 income year if they satisfy ALL of the below:
- Their income tax liability for that tax year is $60,000 or more; and
- They did not receive taxable income from a taxable activity in any of the four previous years.
How many interest instalments
IR will charge interest based on the number of instalments you could have paid if you are a new provisional taxpayer.
The number of instalments you could have paid is based on the date you started your taxable activity.
For those with a 31 March balance, please refer to the table below.
| If your first year of trading starts… | Then the number of provisional tax instalments payable is… |
| Before 29 July | Three (28 August, 15 January and 7 May) |
| On/after 29 July but before 16 December | Two (15 January and 7 May) |
| On 16 December or any time after that | One (7 May) |
These dates will differ if your balance date is not 31 March or you file GST returns on a six-monthly basis.
Interest will be charged based on the following: The income tax liability for the year divided by the number of instalments payable for the year, minus any amount paid in relation to that instalment.
*For the 2020-21 income year onward, the threshold was increased to $5000.
How TMNZ can help
If there is IR interest showing on your account, there's a way to reduce this cost significantly.
As an IR-approved tax pooling provider, TMNZ can apply tax paid to IR on the original due date against your liability if you have missed or underpaid your provisional tax for the 2019-20 income year.
This wipes any IR interest and late payment penalties showing on your account.
How it works
You pay the core tax plus TMNZ’s interest to us rather than paying IR directly.
Once we receive your payment, we transfer the date-stamped tax amount you require from our account at IR to your IR account.
As the tax carries a date stamp, IR treats it as if you have paid on time once it processes this tax pooling transaction. This eliminates any late payment penalties incurred.
TMNZ’s interest cost can be significantly cheaper than the interest IR charges if you underpay your tax. As of 8 May 2020, IR debit interest is currently seven percent.
You have up to 75 days past your terminal tax date for that tax year to pay the additional provisional or terminal tax you owe via TMNZ.
That means if you have a 7 April 2021 terminal tax date, you have until mid-June to settle your income tax for the 2019-20 income year.
Please contact us if you have any questions about tax pooling.
IR payment allocation rules explained
Provisional tax payments made on or before the date of the final instalment for the year are applied to the oldest overdue tax amount first while payments made after the date of the final instalment are applied to the interest owing on any overdue tax first, then the overdue tax amount.
The Inland Revenue (IR) payment allocation rules – which are found in s120F and s120L Tax Administration Act 1994 – also apply to payments made via a tax pooling provider such as TMNZ.
It’s important to understand how they work and differ from one another.
Detailed explanation
Section 120L covers provisional tax payments made on or before the date of the final instalment for the year.
It requires IR to apply a payment to unpaid tax in order from oldest to newest. Please note the unpaid tax amount(s) include late payment penalties.
Section 120F deals with payments that are made after the date of the final provisional tax instalment for the year.
It requires IR to apply payments, in the following order, towards:
- The interest accrued on the oldest unpaid tax amount until that interest is paid.
- The oldest unpaid tax amount until that tax is paid.
- The interest accrued on the next oldest unpaid tax amount until that interest is paid.
- The next oldest unpaid tax amount until that tax is paid.
- To each subsequent arising interest and unpaid tax amount using the pattern above, in time order that relevant unpaid tax arises, until they are paid.
Again, the unpaid tax amount in s120F includes late payment penalties.
The ramifications
These allocation rules mean a taxpayer may well find a tax payment they intended to be destined for a particular instalment date is allocated by IR’s system to earlier unpaid amounts first.
For example, let's say they may make a $10,000 payment on time and in full on 15 January 2021. However, if they failed to pay their 28 August 2020 (P1) provisional tax, then their $10,000 payment will be applied as per s120L to the overdue tax amount (including late payment penalties) at P1 first.
As such, this leaves them exposed to additional (and unexpected) late payment penalties and interest.
It does not matter if the $10,000 payment they made on 15 January 2021 is a date-stamped transfer from the account of a tax pooling provider. Please see sRP19 (1B) Income Tax Act 2007.
In other words, you need to clear the tax liability at all earlier instalment dates first.
How TMNZ can assist with missed provisional tax payments
It's best to purchase from TMNZ the backdated tax to cover the shortfall at the earlier instalment date.
This achieves two things.
Firstly, it eliminates late payment penalties and significantly reduces the interest cost on the underpaid tax.
That’s because the tax you are purchasing from TMNZ was paid to IR on the date it was originally due. IR will treat it as if you have paid on time once it processes your transaction with TMNZ.
Secondly, it ensures that any other payment that was otherwise made on time and in full will be allocated to the particular provisional tax date for which it was intended.
A taxpayer has up to 75 days past their terminal tax date for that tax year to purchase the tax they require.
For example, if you have a terminal tax date of 7 February 2021, you will have until mid-April to settle your 2020 income tax with TMNZ. Those with a 7 April 2021 terminal tax date have until mid-June.
Please contact us if you have any questions. We're happy to help.
Payment options for 15 January provisional tax
One of the challenges of paying provisional tax in times of economic uncertainty is making a payment that is both appropriate and does not negatively impact your cashflow.
Tax is one of the largest expenditure lines for a business, so you want to get it right.
You don’t want to overpay, because that’s money sitting at Inland Revenue (IR) that you could be utilising in your business. Conversely, you don’t want to underpay because you run the risk of facing IR interest and late payment penalties from the date of your underpayment.
Tax pooling offers a safety net if you cannot make your 15 January payment on time or accurately forecast your payment.
It's a service that offers benefits not available to those who pay IR directly, at no downside.
Pay provisional tax when it suits you
The Christmas-early New Year period is often a challenging time. After all, it is a four-week break from business as usual as things slow down.
For someone looking to manage cashflow, tax pooling lets you pay your 15 January provisional tax when it suits you.
Acceptance is guaranteed, and no security is required.
As an IR-approved tax pooling provider, TMNZ can be used to pay your tax on the actual date it is due (e.g. 15 January 2021).
You then pay TMNZ as soon as cash is available and IR recognises it as if the money was paid on time by you.
There are a couple of ways to pay.
You can finance your provisional tax payment. This sees you pay a fixed interest cost upfront and then the core tax amount at an agreed date in the future.
Alternatively, you can enter an instalment arrangement. Under this payment plan, interest is recalculated on the core tax amount owing at the end of each month.
The instalment arrangement offers flexibility in the sense you can pay as and when it suits your cashflow.
All tax pooling arrangements eliminate late payment penalties. The interest payable is significantly cheaper than what IR charges if you fail to pay on time.
Pay what you think, top up later
Most taxpayers tend to base their provisional tax on a 105 percent uplift of the previous year’s liability.
However, the current economic climate may have forced some in highly impacted sectors to revise expectations around profitability for the 2020-21 income year to the point where making payments based on the calculation above is no longer appropriate.
Others simply may be facing difficulty forecasting their liability. As such, they may want to keep cash close at hand in case things change suddenly.
Now there is some good news.
You do not need to pay provisional tax on 15 January based on uplift, nor do you have to file an estimate to pay less than uplift.
Instead you can pay provisional tax based on your forecast expectations of profitability for the year at the time.
Don't worry if, once you determine the liability for the 2020-21 income year, it transpires that you have underpaid. You can purchase any additional tax you owe on 15 January 2021 from TMNZ.
This can be done at a cost that is less than IR’s debit interest rate. It also eliminates any late payment penalties incurred.
That's because the tax you are purchasing from TMNZ was paid to IR on the date it was originally due.
You pay the core tax plus TMNZ's interest cost when you make your payment to TMNZ. TMNZ then applies the date-stamped tax sitting in its IR account against your liability.
IR will treat it as if you paid on 15 January 2021 once it processes this transaction. The remits any late payment penalties showing on your account.
Please contact us if you have any questions about tax pooling.
TMNZ is Now a Partner of Live Ocean
On Thursday, 15 October 2020 TMNZ announced a new partnership with Live Ocean. The announcement at Akarana Yacht Club, where TMNZ used to have their HQ and Live Ocean founders Blair Tuke and Peter Burling first sailed a 49er, aims to turn around some pretty worrying stats about the state of our ocean by accelerating positive ocean action in New Zealand. 94% of New Zealand’s area is ocean, and like business, ocean health is a cause that deserves and demands our leadership.
The story of giving for TMNZ and its founder isn’t new. After pitching the idea of tax pooling to various governments for almost 20 years, Ian and Wendy decided to ‘take the helm’ and mortgage their home to get the industry and TMNZ started in 2003. Since then they have continued to support people and causes that make a difference to the lives of others in NZ. Partnering with Live Ocean is one entry amongst a growing list where all profits are committed to charity each year.
Ian has always had an interest in sailing and saw first-hand the positive impact that Team New Zealand had in Valencia, San Francisco and Bermuda. He was impressed by Peter and Blair, who at the top of their sport, want to find time to make the world a better place. Partnering with them seemed almost fated.
When asked what the support of TMNZ means for Live Ocean, Peter said “So little of our Ocean is protected, 90% of our seabirds are at risk. This helps us fund projects that reverse these trends”.
As a foundation partner of Live Ocean, we see the potential to unlock capability and funding for ocean conservation in New Zealand. When our people are at work, they know they’re helping build a better New Zealand.
To learn more about Live Ocean and the work they are doing visit liveocean.com
Anti-money laundering requirements and tax pooling
Tax Management NZ (TMNZ) must now conduct a limited form of customer due diligence on all clients as part of recent changes to anti-money laundering (AML) requirements.
As such, we will be collecting information about the taxpayers using our service and asking anyone acting on their behalf to supply some basic personal details.
We also need to see evidence that a taxpayer has an actual or expected liability at Inland Revenue (IR) before we transfer tax from our tax pool.
Transactions cannot be completed until we receive this information from you.
Information we require from a taxpayer
For a company, limited AML requires us to collect and hold information about them that is publicly available. We will obtain this information ourselves from the New Zealand Companies Office. You don’t have to do this.
For an individual or a trust, we only need information from a person acting on their behalf (see below).
What person acting on behalf means
As part of the limited AML requirement, TMNZ must collect the identity information from at least one individual who has the authority to act on behalf of a taxpayer using our service.
For tax agents, this can be either of the following:
- A partner, director or owner of your firm; or
- An agent at your firm who is linked to the taxpayer (e.g. the taxpayer’s accountant). It can also include the person who entered the transaction for the taxpayer or the person who receives email correspondence regarding the taxpayer’s transaction if this person is different from the accountant.
For a taxpayer, this can be ANY of the following:
- The taxpayer themselves, if they are an individual.
- An employee who has authority to act on behalf of the taxpayer (if they are a company).
- A trustee of the taxpayer (if they are a trust). We require a copy of the trust deed to ensure this person has authority to act.
The person above requires a TMNZ dashboard login and must either have visibility to view all taxpayers registered with your accounting firm or be linked to the specific taxpayer or transaction. This is not applicable if the taxpayer is an individual or the person acting on behalf is a trustee.
You have the option of supplying the tax agent or taxpayer identity information as part of limited AML.
Identity information we require from a person acting on behalf
TMNZ must collect the following identity information as part of the limited AML requirement if you are a person acting on behalf of the taxpayer:
- Your full legal name.
- Date of birth.
The above is required under section 15 Anti-Money Laundering and Countering Financing of Terrorism Act 2009.
Any personal information TMNZ holds about you or your clients is stored on a secure system that has been penetration tested to ensure this data will not be compromised.
Confirmation of tax liability
The limited AML requirement means TMNZ must also ascertain that a taxpayer using our service has a liability or expects to have a liability with IR before we can complete their transaction.
Proof of this can be in the form of:
- Written confirmation from a tax agent that the taxpayer is expecting to have a liability at IR. (This can be an approximation if the exact figure is not known at the time.)
- A copy of the taxpayer’s myIR transaction detail report for the relevant tax year.
- Standard uplift amounts determined from prior year RIT information. Prior year RIT information must be determined from copies of IR correspondence or written confirmation from a tax agent.
- A copy of any provisional tax estimate submitted to IR by the taxpayer.
- Any correspondence from IR showing a liability to pay in respect to the relevant tax year.
We only require confirmation of a taxpayer’s liability when we transfer funds from the tax pool to their IR account.
Does the information provided need to be verified?
A partial exemption granted to the tax pooling industry means there is no need for TMNZ to carry out the verification requirements that apply under full AML.
In other words, we do not need you to provide copies of documents to substantiate the information you provide.
Full AML, including verification, is still required for refunds or sales that meet our policy thresholds.
AML has been around for a long time – why are you asking for this information now?
Previously, TMNZ only carried out AML if a taxpayer was requesting a refund or sale over a certain amount from the tax pool.
However, our AML regulator – the Department of Internal Affairs (DIA) – is making tax pooling providers hold more information about every taxpayer using our service and anyone with authority to act on their behalf.
This limited AML requirement from DIA is in response to the accounting profession being brought into the AML regime. It has been in effect since 1 July 2020.
As a reporting entity captured under the Act, TMNZ must comply with the AML regulations set out in the legislation and any other requirements issued by DIA.
Please feel free to contact us if you have any questions. We’re happy to help.
Updated 12 October 2020
Disclaimer: This article is correct as at 12 October 2020. It is subject to change.
How filing late and losing EOT impacts provisional tax payments
Losing extension of time (EOT) due to filing income tax returns late means someone can only use 105 percent of the previous year's residual income tax (RIT) when calculating their provisional tax payments.
That's because if a taxpayer fails to provide their returns(s) on time, Inland Revenue's (IR) system defaults to using the date by which they were legally due to file the return for that year – not the date on which they furnished the return.
Only if someone files their return(s) within the required timeframe will the actual date of filing be used.
This is important to remember, particularly when using TMNZ’s Tax Calculator.
An overview of IR's system and TMNZ's Tax Calculator
When a taxpayer files their return for the most recently completed year, IR’s system uses the lesser of standard uplift or a third of their RIT to determine the provisional tax instalment amounts due and payable for that year.
As per s120KBB (3B) Tax Administration Act 1994, the standard uplift instalment can either be the lesser of the 105 percent or 110 percent calculation. You can read more about that here.
TMNZ’s calculator follows the same logic as IR's system.
To determine the instalment amounts due and payable, it requires a taxpayer's RIT and filing date information for the past three years:
- The current tax year or most recently completed tax year (e.g. 2020).
- The tax year prior to that (e.g. 2019).
- The tax year two years prior to that (e.g. 2018).
Whereas IR has access to this information, we unfortunately don't. That's why we ask users to enter these details themselves.
If someone was late in providing a return and lost their EOT in any of the years before the current or recently completed tax year, then it’s crucial they know the correct filing date to use, otherwise the calculator will spit out incorrect instalment amounts.
After all, garbage in, garbage out.
Example
A taxpayer with a 31 March balance date decided to use TMNZ’s Tax Calculator to work out the provisional tax payable for the 2019 tax year. They did not pay any income tax for that year and wanted to purchase it from TMNZ to reduce their interest cost and eliminate late payment penalties.
RIT and filing date information for the past three years
| Tax Year | RIT | EOT | Legal date by which they must file their return | Date they file their return | Return status |
| 2017 | $6000 | Yes | 31 March 2018 | 1 May 2018 | Late |
| 2018 | $10,000 | No | 7 July 2018 | 16 January 2019 | Late |
| 2019 | $25,000 | No | 7 July 2019 | 30 June 2019 | On time |
As you can see, the taxpayer has lost their EOT for the 2018 tax year due to filing their 2017 return late. Their 2018 return was also late, so they don’t have EOT for their 2019 tax year either. However, the taxpayer did file the latter year’s return on time.
This means when using TMNZ’s Tax Calculator they must enter into the ‘date of filing’ field the respective legal dates by which they were required to furnish the returns for the 2017 and 2018 tax years.
For the 2017 tax year, this will be 31 March 2018 as their EOT was still applicable. For the 2018 tax year, this will be the non-EOT deadline of 7 July 2018.
Legislation states anyone who has an early balance date (i.e., the period between 1 October and 31 March) must file their return by 7 July if they do not have EOT. Those without EOT who have a late balance date (i.e., the period between 1 April and 30 September) must file their return on the seventh day of the fourth month after their year-end.
As the 2019 tax return was provided within the mandatory timeframe, the taxpayer can use the actual date on which they submitted that year’s return to IR.
Recap: How things should look in TMNZ’s Tax Calculator
| Tax year | RIT | Date of filing |
| 2017 | $6000 | 31 March 2018 |
| 2018 | $10,000 | 7 July 2018 |
| 2019 | $25,000 | 30 June 2019 |
How this impacts provisional tax instalments
In this situation, the 2019 provisional tax instalments will be based on the standard uplift amount as this is lower than a third of the RIT for that year.
However, ALL uplift payments will be based on 105 percent of the 2018 RIT.
That’s because the taxpayer lost EOT for the 2018 tax year and, therefore, was supposed to have filed their return for that year on 7 July 2018 – before the date of their first provisional tax instalment for the 2019 tax year (this being 28 August 2018).
As such, they cannot base any payments off 110 percent of their 2017 RIT.
Therefore, the 2019 instalment amounts due and payable as per IR's system – and what TMNZ's Tax Calculator will tell them to purchase – at each date are as follows:
- 28 August 2018: $3500
- 15 January 2019: $3500
- 7 May 2019: $3500
TMNZ's calculator will also show the taxpayer needs to purchase at their terminal tax date the final balance of $14,500 to settle the 2019 RIT, as their RIT is less than $60,000.
Please note the terminal tax date will have been 7 February 2020 due to them losing their EOT. They would have had 75 days from this date to purchase from TMNZ the 2019 income tax they require.
Don't forget the flow-on effect
It is also important to remember that because there was a requirement to file the 2019 return by 7 July 2019, the taxpayer can only use the 105 percent uplift calculation for their 2020 provisional tax payments.
Again, this is due to the filing date for the 2019 return being before the first instalment date for the 2020 year.
So, using the RIT information above, the standard uplift payments for the 2020 tax year will have been:
- 28 August 2019: $8750
- 15 January 2020: $8750
- 7 May 2020: $8750
For those using the standard uplift method, the 105 percent calculation will continue to be the only option for them to determine provisional tax payments until the taxpayer re-applies for their EOT.
Legislative references
You can find the legislation pertaining to filing dates of tax returns and EOT in s37 and s38 Tax Administration Act 1994.
Please feel welcome to contact us if you have any questions.