Three ways TMNZ’s tax finance solution has supported NZ business success
Since 2003, TMNZ has helped over 25,000 Kiwi businesses to improve cashflow, through our provisional tax solutions. And in the current market conditions, it’s no surprise that we’re experiencing increased demand from businesses looking to finance their 15 January tax payments. Here we cover three different ways, three different businesses have benefited from financing their tax payments through us.
To find out how tax finance can solve your cashflow challenges this summer, learn more here.
Smarter savings in the hospitality industry
The situation
A local hospitality equipment supplier found themselves in an exciting position. As an importer of specialized restaurant equipment, they noticed a significant shift in currency exchange rates that made their European supplier's products much more affordable than usual.
The challenge
While the timing presented a perfect opportunity to acquire high-quality equipment at reduced prices, the business faced a common dilemma. Their provisional tax payment was due soon, and the funds they had set aside for it were exactly what they needed to secure this advantageous deal. It was a situation many business owners face - having to choose between meeting tax obligations and capitalizing on business opportunities.
The solution
Rather than missing out on the opportunity, the business discovered a practical solution through TMNZ. Their approach was straightforward, they partnered with TMNZ to arrange a deferred payment plan for their provisional tax. They utilised their tax payment funds to purchase the discounted equipment and maintained compliance with Inland Revenue while pursuing business growth.
The Results
The strategy proved successful on multiple fronts, they:
- acquired high-quality equipment at below-market prices
- maintained healthy cashflow despite the significant purchase
- increased their profit margins on future equipment sales
- kept their tax obligations in order without penalties
- and enhanced their competitive position in the market.
Your key takeaway
While many small business owners view tax payments as inflexible deadlines, this case demonstrates how working with TMNZ can help manage tax obligations while seizing time-sensitive business opportunities that enhance profitability.
Scaling up in the transport industry
The situation
A transport business landed a fantastic opportunity - a contract supporting a major infrastructure project that could take their company to the next level.
The challenge
The timing created a cashflow squeeze. While winning the infrastructure contract was a milestone achievement, the business needed to expand their trucking fleet immediately to fulfill the contract requirements. Like many small businesses experiencing growth, they had funds set aside for their provisional tax payment but needed that same cash to fund their expansion.
The solution
The business owner took a strategic approach to managing this opportunity and partnered with TMNZ to defer their tax payment for 12 months. They used their provisional tax funds to purchase an additional truck and started servicing the new contract immediately with their expanded fleet.
The results
This decision generated multiple benefits, where the business:
- secured and began working on the valuable infrastructure contract
- increased their fleet capacity and revenue potential
- generated immediate positive cashflow from the new truck
- maintained good standing with Inland Revenue
- spread their tax payment over a more manageable timeframe.
Your key takeaway
Small business growth often requires making quick decisions when opportunities arise. This case shows how flexible tax payment arrangements can help business owners invest in growth while managing their tax obligations responsibly.
Supporting cashflow over summer in the electronics industry
The situation
A small electronics distribution company faced a common seasonal business challenge. Like many businesses in their industry, they traditionally closed their operations during the Christmas period through mid-January, aligning with their major clients' shutdown periods.
The challenge
The holiday season created multiple financial pressures, like zero revenue during the extended Christmas closure. Staff holiday pay obligations were due during this period, and income tax and GST payments were due on 15 January. The business owner was worried about not being able to fully enjoy their family holiday due to financial stress.
The solution
The business owner took proactive steps to manage their seasonal cashflow, and Connected with TMNZ in December. The owner recognized the recurring nature of their holiday season squeeze, and decided that from now on, they would arrange to defer their 15 January income tax payment until April. This maintained their GST compliance while managing cashflow in a smarter way.
The results
This strategic approach delivered both financial and personal benefits, where the owner:
- balanced their holiday season expenses without depleting cash reserves
- maintained staff satisfaction with timely holiday pay
- shifted tax payments to align with their stronger cashflow period
- enjoyed stress-free family time at the beach
- started the new year in a stronger financial position.
Your key takeaway
Many seasonal businesses face predictable cashflow challenges during holiday periods. This case demonstrates how planning ahead and using flexible tax payment arrangements can help business owners manage their obligations while maintaining work-life balance during crucial family times.
For more on how our tax finance solutions can help your business, go here.
How to manage cashflow over Christmas
Everyone loves the middle of summer and spending time with family and friends over Christmas, but it can be a challenging time of year for many small and medium-sized Kiwi businesses.
According to a poll conducted by the Employers and Manufacturers’ Association, more than half of businesses experience cashflow constraints between January and March.
It’s hardly surprising. The period after Christmas is traditionally slow for many companies, with people away enjoying their holidays. Consumers also tend to reduce spending after the expensive Christmas and New Year period.
Businesses can come under pressure for a number of reasons. Earnings will be down if companies shut over the break, while others will feel the pinch if they have paid bonuses before the end of the year.
Considering these facts, it’s understandable that many businesses struggle to manage cashflow and make provisional tax payments on 15 January every year.
Unfortunately, Inland Revenue (IR) doesn’t factor in these seasonal challenges. IR charges taxpayers 5.04% late payment penalties and 10.91% use of money interest (UOMI) if tax is not received on the due date (as at November 2024).
Your options for managing cashflow
What are the best options for businesses that want to manage cashflow and free-up money over the summer?
Tax pooling is IR-approved and can be used to defer provisional tax payments to a time that suits the taxpayer without incurring late payment penalties and UOMI.
This method is cheaper than using many traditional forms of finance. And tax pooling doesn’t affect existing lines of credit. Also, no credit checks or security are required.
The full amount of finance doesn’t need to be paid back if less tax is owed than first thought. The finance arrangement can be easily extended as well.
How tax pooling can help
Say you want to defer a $5,000 provisional tax payment for six months. You would pay TMNZ a one-off, tax-deductible interest amount and TMNZ would arrange the $5,000 provisional tax payment on your behalf.
The interest amount is based on the amount of tax financed and the period of maturity, so in this instance, it would be roughly $205.
The provisional tax payment is held in an IR account administered by the Guardian Trust. Guardian Trust instructs the IR to transfer the tax into your IR account when you repay the $5,000 principal in six months’ time.
The IR treats the $5,000 provisional tax as being paid on time once the transfer is processed. It’s that simple.
Ready to ease your seasonal cashflow worries? Learn more about our tax finance options today.
Find our latest resources on tax pooling and calculating tax using the Standard Uplift method here.
Are you in a tight spot with your company tax?
Fibre Cement Solutions Ltd is a family-run business, owned by Rachel Osborn and Graeme Zimmerman, who bring 25 years of construction industry experience with them. As a leading supplier of fibre cement board in New Zealand, they work with several construction partners across the country and after expanding, they have distribution centres in both Auckland and Christchurch.
A few years into business, Rachel, who managed the finances of Fibre Cement Solutions, found herself in a tight spot. It was the middle of COVID-19, and she hadn’t been advised of their upcoming tax liabilities and deadlines. Like many smaller businesses, especially those in the construction industry, the business was experiencing fluctuating cashflow, despite in their case, fantastic growth. As a result, Rachel found herself struggling to pay the unexpected company tax on time, now facing the risk of hefty penalty from Inland Revenue (IR).
Her new accountant suggested she look into tax pooling and made the introduction to Tax Management New Zealand (TMNZ).
And that’s where TMNZ stepped into help.
TMNZ can work directly with any business (or with their accountant) to find a better solution for provisional tax.
Rachel contacted TMNZ to sign up to their IR-approved service, which gives businesses up to 22 months to pay their company tax without incurring heavy penalties. TMNZ provided Rachel with flexible payment options, charging only a small interest fee for the service, much smaller than IR or bank interest rates. And when her tax payments were made, TMNZ transferred these to IR, as date-stamped payments. Job done.
Rachel's flexible payment plan with TMNZ allowed her to make payments on dates that suited the business’ cashflow, and payment amounts that worked for her budget. This solution allowed the business to stay compliant with IR regulations, avoid fees, and manage tax obligations in a way that better suited the business. Meaning Fibre Cement Solutions could continue to pay staff, meet sales targets and continue to grow.
After her initial positive experience with TMNZ, Rachel now monitors the company's financial position monthly. She loves the option to pay TMNZ instead of Inland Revenue directly, allowing her to reinvest funds into the business for growth. Rachel says:
“If you are ever in a tight spot re paying your company tax like we were, there is an incredible solution that TMNZ offer… It is so flexible and user friendly and keeps you out of trouble with the IRD!”
“The Team at TMNZ are extremely friendly and can explain tax in layman's terms which I really loved. I cannot recommend them highly enough”
To learn more about how TMNZ can help your business manage tax payments and gain cashflow flexibility, contact one of our friendly team members here or speak with your accountant about setting up a flexible cashflow arrangement allowing you to choose when you pay your tax.
Top ten financial benefits of tax pooling for larger businesses
Corporate businesses with June balance dates will be aware of the 28 November provisional tax deadline fast approaching.
So, now’s the perfect time to start thinking about using tax pooling – not just to save on Inland Revenue interest and reduce risk, but also as a strategic financial tool for competitive advantage.
If you’re new to tax pooling, it’s worth knowing that it’s an Inland Revenue approved system to help New Zealand businesses better manage their provisional tax. Tax pooling has been around since 2003 and since then TMNZ has helped over 130,000 taxpayers to save more than $520 million, with our flexible and innovative tax payment solutions.
Essentially, tax pooling turns a fixed tax obligation into a flexible financial instrument, giving your company more control over its tax strategy and cashflow management.
Specifically for larger businesses with complex tax obligations, there are many strategic financial benefits. Here we’ve summarised our top ten positive impacts of tax pooling:
- Cost savings: Large businesses often have significant tax liabilities. Tax pooling can lead to considerable savings on Inland Revenue interest and penalties. Savings for some big New Zealand businesses are in the hundreds of thousands of dollars annually. Plus, businesses can even earn more on any overpaid tax.
- Working capital optimisation: Tax pooling allows businesses to retain large sums of working capital for longer periods, which can be strategically deployed for investments, acquisitions, or other high-return activities.
- Risk management: Large businesses face complex tax risks. Tax pooling can be an effective tool in an overall tax risk management strategy, providing protection against unexpected liabilities, reassessments, and penalties.
- Compliance benefits: Tax pooling can help maintain compliance across complex tax structures and simplify tax management processes.
- Reporting advantages: With tax pooling, businesses can improve financial reporting by providing more predictable tax expenses and potentially enhancing key financial ratios.
- Market considerations: For businesses heavily impacted by fluctuating markets, tax pooling can be beneficial for dealing with interest rate fluctuations, by allowing businesses to lock in rates in advance.
- Tailored arrangements: With a business’s specific tax situation in mind, tax payments can be structured around unique cashflows, rather than Inland Revenue's standard dates. This flexibility gives more control over funds - from earning higher interest on overpayments to accessing funds as a fee-free line of credit or carrying them forward to future years.
- Direct integration: TMNZ is directly integrated with Inland Revenue, providing certainty and security around sensitive tax information.
- Scalability and growth: Tax pooling solutions can scale with a business’s growth and adapt to changing tax landscapes.
- Personal support: Our expert team of Chartered Accountants, tax lawyers and customer success specialists are on hand to provide you with personal support and guidance, when you need it.
Whatever your tax position - whether you're looking to earn more interest on overpayments, need payment flexibility and want to avoid expensive banking facilities - tax pooling offers more control and better financial outcomes than paying IR directly.
Contact our team to discuss how these benefits apply to your business and to develop a tailored arrangement before the upcoming provisional tax deadline.
Reducing risk: 28 October provisional tax
The current market conditions are making it even trickier to work out how much provisional tax to pay, not to mention finding the funds to pay it. That’s why, with 28 October approaching, we’re going to offer some ways to reduce your risk in this uncertain environment.
TMNZ offers options to defer this payment for up to 19 months – without having to worry about any nasty consequence from Inland Revenue (IR). We also look at the pros and cons of the respective options available to calculate your payment.
For taxpayers with a 31 March balance date who file their GST returns every six months, 28 October will be the first of two provisional tax instalments payable for the 2024-25 income year. It is also the first of three instalments payable for those with a 31 May year-end who file their GST returns monthly or every two months. This makes it a major payment date for many businesses in the agricultural sector.
What should you pay?
While working out the liability to the exact cent is far from easy – even at the best of times – it does not change the fact you generally have two options when it comes to calculating your provisional tax payments. They are:
- Pay based on an uplift of an income tax liability from a previous year. This is known as using the standard uplift method.
- Pay based on your current expectation of profitability for the 2024-25 income year.
Paying based on an uplift of a prior year
If you travel down this route, the provisional tax payable for the 2024-25 income year will be based on either:
- Your 2024 income tax liability plus five percent; or
- Your 2023 income tax liability plus 10 percent (if your accountant has not filed your 2024 tax return and does not legally have to do so until 31 March 2025).
The benefit of paying uplift means you will not incur IR interest (UOMI) – from 28 October 2024 if it turns out you have not paid enough provisional tax to satisfy the liability for the year.
Given this is the date which carries the longest exposure to UOMI, sticking with uplift may be a sound insurance policy if you feel a similar result to last year is on the cards or want to play it safe in this uncertain environment to ensure you are not caught short later if business picks up down the track. And besides, if things turn to custard, you can always revise your payment downwards later to account for any overpayment on 28 October once the picture starts to become clearer.
However, the downside of paying on uplift means you may end up making a provisional tax payment that is not reflective of your current earnings (or more than your expected profitability for the year). From a cashflow perspective, that can be problematic as generally you will not be able to get your overpaid tax back from IR until after you have filed your 2024-25 income tax return.
Paying based on forecast profitability
Indeed, there’s no denying many New Zealand businesses have been doing it tough and are forecasting lower profits. As such, you may be considering making a payment on 28 October that is more in line with how you are currently performing – especially if your business earnings have been significantly impacted.
On plus side, you won’t be paying any more provisional tax than you need to if you choose to do this. That will certainly offer a cashflow benefit by allowing you to keep money in your business.
You can always revise payments upward or downward depending on how everything unfolds. However, it means you run the risk of incurring UOMI from 28 October 2024 if you experience a sudden or late upswing in profitability during the backend of the 2024-25 income year and provisional tax paid on this dates turns out to be less than the amount required. That said, there is a way to reduce the interest cost on underpaid tax. More on that shortly.
Do you need to file an estimate with IR to pay less than uplift?
We get this question a lot. You do not need to file an estimate with IRD if you plan on paying provisional tax based on your expected profitability for the 2024-25 income year. There is no legislative requirement to do so. Just make your payment on 28 October as you see fit.
Tax pooling can help if you cannot pay, or it turns out you have not paid enough
No matter the basis you utilise to calculate your 28 October payment, IR-approved TMNZ can offer some assistance, with payment options for taxpayers who:
- Do not or cannot make their payment on the prescribed IR payment date.
- Want to eliminate IR interest and late payment penalties if they underpay their tax.
Pay 28 October provisional tax when it suits you
Where preserving cash is of primary importance, you can use TMNZ to defer an upcoming provisional tax payment for up to 19 months, without facing UOMI and late payment penalties.
TMNZ will make a payment to IR on your behalf on 28 October. You then pay TMNZ later. This can be once the liability for the 2024-25 income year is known or when your cashflow situation improves. The amount owed can also be paid in instalments.
You would have until mid-June 2026 to pay what you owe with Flexitax if you have a 7 April terminal tax date. Check with your accountant if you are unsure what your terminal tax date is. There is some interest to pay to TMNZ – but this is significantly cheaper than IRD’s UOMI rate.
Reduce the cost of underpaid tax
Tax pooling is not just for those who are struggling to pay IR on time.
Where forecasting profitability for the 2024-25 income year is proving challenging or you would simply prefer to make your provisional tax payments based on how your business is performing by reviewing your position at each instalment date, you can rest easy knowing that TMNZ can help in the event you get your payments wrong and wind up with additional tax to pay. That’s because you can use TMNZ to make significant savings on the IR interest cost you face and wipe late payment penalties when you underpay tax.
How? TMNZ lets you apply provisional tax that was originally paid to the tax department on the date(s) it was due against your liability. As such, IR treats it as if you paid on time once it processes this tax pooling transaction. This eliminates any late payment penalties. You have up to 75 days from your terminal tax date for the 2024-25 income year to pay any underpaid provisional tax with TMNZ. It’s a useful option to pull out of your back pocket once you determine your actual position and file your return. The savings TMNZ offers on underpaid tax can be significant.
Speak with your accountant
As always, we recommend you speak with and direct any questions you have about your 28 October provisional tax payment to your accountant. If you don’t have an accountant, check out the directory of firms that TMNZ works alongside. You can filter this list by specialist topic or search for a tax agent in your region.
Tax Finance: An alternative funding source
Growing a business is hard yakka. More specifically, it costs money.
And therein lies a problem for many small business owners: Cashflow. In fact, it’s not a problem. It’s a major problem. According to Xero’s Small Business Insights, New Zealand business sales fell by over 8% for the year ending June 2024.
Now granted, there are several choices available when it comes to accessing funds you need to. A bank loan, overdraft, credit card and an unsecured loan are just some.
But again, it’s not that simple. There can be a few hoops to jump through as part of the approval process and you will likely have to use assets as collateral, often using your personal house (or the house of a shareholder, for example) as security to get a lower cost of funds. If there is no approval or credit review process, then chances are you will be up for double-digit interest rates. Ouch.
However, there is another option. It’s one you probably have not heard about either.
The other option – Tax Finance
Did you know that your provisional tax payments are also a source of finance? Yes, that’s right – provisional tax. That thing many small business owners loathe paying. That thing that places undue pressure on, you guessed it, cashflow.
Allow us to explain.
An IR-approved tax pooling provider such as TMNZ offers a payment option known as Tax Finance. It lets you free up working capital by deferring a provisional tax payment to a later date, without incurring Inland Revenue (IR) interest of 10.91% (as at 7 August 2024) and late payment penalties.
For an upfront finance fee, you can choose a time in the future you wish to pay what you owe. Essentially, this allows you to use the money you have set aside for income tax more productively.
The finance fee or interest you pay to TMNZ is:
- similar to the interest rate charged by a bank for a residential mortgage; and
- tax-deductible.
So, you could also use the money set aside to repay your mortgage earlier, thereby reducing non-deductible interest costs charged by the banks on your personal house. The cost of Tax Finance is cheaper than using your business overdraft or an unsecured loan. Approval is guaranteed. Moreover, you do not have to provide any security.
Even better, if you already have paid tax deposits into the TMNZ tax pool, you can finance them back out while keeping the original tax date. We call this Tax Drawdown.
Altogether, this effectively treats your tax payments with the TMNZ tax pool as a revolving credit facility.
Who might Tax Finance suit?
Tax Finance will suit those who:
- are looking for funding that does not affect other lines of credit or their General Security Agreement with their bank
- want to keep headroom in their existing lending facilities
- do not wish to go through the rigmarole of the normal lending process
- want a fixed interest cost
- feel there is more to gain financially from being able to keep money in their business instead of paying income tax.
How much does Tax Finance cost?
It depends. The finance fee is based on the amount of tax due and the future date you wish to pay.
As mentioned above, the TMNZ finance fees are similar to the home loan mortgage interest rates charged by banks.
For instance, at current rates¹ it only costs $335 to defer a $10,000 provisional tax payment for six months. That works out to be approximately 6.70%pa².
How does Tax Finance work?
Here's how Tax Finance works in a nutshell:
- Ahead of your provisional tax payment date, you tell TMNZ the amount of tax you want to finance, the future date you want to finance that to (e.g., the date you think you may be able to pay the tax amount) and pay the finance fee based on the quote TMNZ provides. TMNZ arranges for a bank to make a payment for you in its tax pool account at IR on the provisional tax date. This payment is date-stamped.
- At the agreed upon future date (known as the maturity date), you have a few options:
- settle the full tax amount by paying TMNZ; or
- roll over the financed amount for another period of time – in this case you can get a quote for a further finance fee to pay based on how long you want to finance for;
- settle part of the financed tax and roll over the remaining part;
- settle only the amount you need (if your actual tax liability has reduced).
- Upon settlement of the financed tax, ownership of the tax deposit made by the bank changes to become owned by you and sits in your tax pooling account with TMNZ. You can then request TMNZ to transfer the tax payment it is holding on your behalf to your IR account to clear your tax liability. Once they’ve processed the transfer, IR treats this tax amount as if the tax was paid on your original provisional tax date. It will also reverse any interest and late payment penalties showing on your account.
In the event you choose the fourth bullet in step 2 above, there is no obligation on you for the remaining financed tax (even if you decide to not settle any of the financed tax). You can simply walk away, no questions asked. Or you can ask us to try and sell the residual unused financed amount for you and earn you some interest return, effectively getting some of your finance fee back.
TMNZ offers a competitive rate for Tax Finance. For more information, get in touch.
¹ At at August 2024
² The published ANZ 6 month residential mortgage rate as at 7 August 2024 is 6.99%pa if you have at least 80% LVR.
Five top tips for paying 28 August provisional tax
Are you due to pay 28 August provisional tax?
For many businesses, this will be their first instalment of provisional tax for the 2025 tax year. It’s important to stump up what you owe on this date. Inland Revenue (IR) won’t hesitate to charge steep interest and late payment penalties if you don’t.
If you’re a business owner or operator, here are five useful tips to ensure you’re ready to pay 28 August provisional tax. For agents, you may also wish to share these tips with your clients to help them prepare.
1. Assess your cashflow
Now’s the time to look at the money coming in and going out of your business.
Cast your eyes over your accounts receivable report to see which customers owe you money. If required, ask them if they can sort their bill earlier. Conversely, see if you can buy more time if you owe suppliers money.
If cashflow is tight or you have a better use for the money, keep reading. There’s an option that lets you pay 28 August provisional tax when it suits you.
2. Be aware of the changes
If you’re a safe harbour taxpayer, be aware that despite the rule changes, IR will still charge LPPs at each payment date. You can find out more about the changes here.
3. Know your methods to calculate 28 August provisional tax
It’s important you are aware of the different methods available to calculate your provisional tax payments. For more information about the provisional tax methods available to you, see our Provisional Tax Guide.
4. Consider using tax pooling
An IR-approved tax pooling intermediary such as TMNZ can assist if cashflow is tight. Working with us allows you to pay 28 August provisional tax at a time and in a manner that suits you, without incurring late payment penalties. You can defer the full payment to a date in the future or pay off what’s due in instalments.
Paying via TMNZ also means significant savings on Inland Revenue use of money interest.
TMNZ holds date-stamped tax for you in its IR account. You pay TMNZ at the agreed future date or as and when it suits your cashflow.
5. If in doubt, consult a professional
Do you have any questions about 28 August provisional tax? Seek the advice of an accountant or tax advisor. They can determine the best provisional tax calculation for your business and help you manage your payments and cashflow.
If you wish to learn more about the provisional tax payment flexibility TMNZ offers businesses, get in touch
Information in this article is correct as at 30/7/24. You should consult with your tax advisor concerning all tax matters. Read our Terms and conditions.
How you can use tax pooling like a savings account
In business, cash is king, and being able to access funds quickly in a crisis can mark the difference between success and failure. In an unpredictable world, having the ability to access cash during challenging times can be priceless.
With tax pooling, companies can easily request refunds of provisional tax payments they have made at the year to date without waiting to file their tax returns. They can receive their refunds within a matter of days.
Tax can be one of the largest expenditure lines for a business, so flexibility is vital.
In this economic climate, it’s far from ideal to have large sums tied up with Inland Revenue (IR).
What if you can’t access the money in an emergency?
What if your profitability projections trend down over the year, meaning you’re likely to overpay?
For taxpayers with a 30 June year-end, the first instalment of provisional tax is due on 28 November. Every business and sole trader should ask themselves these questions, especially if their work is seasonal or cyclical in nature.
Businesses should also think about the accessibility of their funds if their income is difficult to predict or fluctuates due to factors such as commodity prices, adverse weather events, or the exchange rate.
Accessible tax money
Depositing tax payments into a tax pool can form part of an effective risk management strategy in times of uncertainty.
Look at it like depositing into a savings account with the added benefit of eliminating late payment penalties and IR interest. You can still access your funds if you need to, you’re covering yourself for tax time and possibly extending your time to pay.
How depositing provisional tax into a tax pool works
Tax pooling operates with the blessing of the New Zealand tax department. TMNZ has been a registered provider of the service since 2003.
Companies deposit their provisional tax payments into a shared pool instead of directly into their own IR account.
Each payment is date stamped as at the date it is made into the pool (e.g., 28 November). Funds are held in an account at the IR. This account is managed by an independent trustee, Guardian Trust.
A taxpayer holds their payments in the pool until it instructs TMNZ to transfer their deposits to their own IR account.
Taxpayers can request a refund from TMNZ of provisional tax deposits held in the pool at any time without having to file their tax return or an estimate with IR.
Refunds may be subject to meeting anti-money laundering requirements. (Corporate taxpayers also need to be mindful of imputation credit account impacts when requesting a refund of tax they hold in the pool).
A taxpayer typically instructs TMNZ to transfer their tax deposits to their own IR account once they finalise their tax return and know the amounts required at each instalment date to satisfy their liability for the year.
As the tax being transferred from the TMNZ tax pool to a taxpayer’s IR account has been date stamped to when it was originally paid into the pool, IR recognises it as if the taxpayer paid the whole amount on time.
This remits any IR interest and late payment penalties showing on the taxpayer's account.
Access previously paid funds
If you’re short on cash, tax pooling also allows you to temporarily withdraw deposits you hold in our pool.
You can access the amount of provisional tax funds you have deposited (minus an upfront interest cost). You also have the option to restore your deposit at the original deposit date once your cashflow situation has improved.
Buy some time
When preserving cashflow is high on the agenda, you can use a tax pool to defer upcoming provisional tax payments to a date in the future without incurring late payment penalties.
For example, someone with a 7 April terminal tax date could have up to 75 days from that date to settle their provisional tax.
Earn more interest if you’ve overpaid
If you have surplus tax remaining in the pool once you have transferred money to the IR to satisfy your liability, you can earn interest above the IR’s credit interest rate by selling the excess tax to other pool members that have underpaid for the year or have received a notice of reassessment from the IR.
Please note that this is subject to market demand.
The purchasing taxpayer can reduce the interest cost faced on their underpayment significantly when applying this tax against their liability. This also eliminates any late payment penalties.
Overpayers earn more interest while fellow taxpayers pay less. Everyone’s a winner!
Find out more
To learn more about managing your provisional tax, check out our calculating provisional tax guide and cashflow management tips for businesses.
Alternatively, please get in touch with our friendly support team if you have any questions. We're always happy to help.
Manage IR exposure with corporate tax pooling
With the 28 November provisional tax date fast approaching, now’s the perfect time to talk to larger clients about the benefits of TMNZ corporate tax pooling.
Tax pooling is an Inland Revenue-approved system to help New Zealand businesses manage their provisional tax. Instead of paying the IRD directly, taxpayers can purchase overpaid tax from other tax pool members and pay into the tax pool when it suits them.
As some businesses overpay tax when they have funds to spare, they help to cover other taxpayers that need a bit more time to meet their obligations. We like to think of it as businesses helping businesses.
TMNZ is proud to be New Zealand’s original tax pool, pioneering the concept in 2003. We haven’t looked back since, helping large businesses, SMEs, and sole traders with tax management.
With tax pooling, businesses that can’t meet their provisional tax liabilities can purchase tax from those that have overpaid. This is charged at a lower interest rate than the IRD’s use of money interest charges, and companies also avoid late payment penalties.
There are advantages on both sides of a tax pool. Companies that have overpaid into our pool can also earn more interest on their surplus tax than if they had paid the IRD directly.
Clients that experience volatility or pay substantial amounts of provisional tax (e.g., more than $100,000 at each date) can reduce their exposure to use of money interest by paying provisional tax into the Guardian Trust/TMNZ tax pool account at Inland Revenue (IRD) rather than directly into their IRD account.
In summary, here are all of the ways corporate tax pooling is great for large companies:
- Companies earn more interest on surplus tax than they would if they overpaid the IRD.
- Tax can be purchased if businesses have underpaid income tax.
- Tax can be swapped across provisional tax dates to reduce exposure to use of money interest.
- Overpaid tax can be refunded within three to five days — without filing a return.
- Businesses can access TMNZ’s in-house expertise for corporate tax pooling advice on how to optimise their provisional tax payments.
- Money is deposited in the TMNZ tax pooling account at IRD.
What’s more, by using the TMNZ tax pool, you and your clients are also helping to give back to New Zealand. All our profit is invested in the Whakatupu Aotearoa Foundation, supporting social and environmental causes.
Contact us today to find out how TMNZ tax pooling can help your clients.
How tax pooling can help your tax management
Meet Andy, a builder who has run his own business for three years. Things are going well, and he’s set to make a substantial profit in the current financial year. He’s well-paid and smart enough to set aside tax he owes with each payment. But clients don’t always pay him on time, causing some serious headaches.
Like many businesses, Andy experiences cashflow issues. He makes a profit but doesn’t always have enough funds in his account to pay provisional tax when it’s due.
What should Andy do? Grin and bear the Inland Revenue’s late payment penalties and use of money interest charges after missing his payment dates? Or seek a better option?
Luckily, Andy’s accountant Lisa knows all about tax pooling and how it can relieve the financial pressure.
Tax pooling explained
Andy asks his accountant how tax pooling works and some of its main benefits.
Lisa explains that tax pooling has been available to taxpayers for two decades, starting in 2003 when TMNZ became a registered provider with IR.
The accountant says tax pooling has clear benefits over traditional tax management:
- Taxpayers can choose to pay their liabilities in a time and manner that suits them, without having to worry about IR interest and penalties.
- They can make significant savings on use of money interest charged and eliminate late payment penalties if they miss or underpay provisional tax, or if they are reassessed by IR.
- When taxpayers overpay into the TMNZ tax pool, they can earn a much higher rate of interest on overpayment of funds than they would receive from the IR.
Who oversees TMNZ’s tax pool?
Lisa assures Andy that all payments made into TMNZ’s tax pool account at the IR are managed by an independent trustee, Guardian Trust.
Guardian Trust oversees the bank accounts into which taxpayers pay their money, as well as the transfer of funds from the TMNZ tax pool to Andy’s IR account.
Because the tax being transferred has been paid and date stamped as at the original due date, any penalties and interest are wiped once the payment is processed by the IR.
Companies of all sizes can use tax pooling
Tax pooling can help businesses of all sizes, from companies with thousands of employees down to sole traders. TMNZ’s tax pool is the largest and most established in the country.
Lisa’s research found two companies TMNZ has helped.
One company uses tax pooling to counteract fluctuating seasonal revenue:
“It takes away all those stresses. You’re passing it on to somebody else and saying, ‘take care of this for me, I don’t know what to do, we’ve got a shortage of cashflow’ and it’s the best way of putting more energy into your business and doing the things that you’re good at.”
The second company uses a tax pool as they need to invest in equipment regularly.
"With a business like ours, we are investing quite heavily into assets like cars, campers, and boats. Cash upfront is important [for] us to have.”
TMNZ has helped both companies manage working capital and mitigate the risk of fees and penalties.
“What is the cost of this?” Andy asks.
“Just TMNZ interest,” Lisa replies.
Tax pools can help with voluntary disclosures and audits
Lisa looks through Andy’s expected outgoings for the year. These range from the cost of living to many other expenses associated with owning a business.
The accountant realises that in a previous year, Andy made a mistake on one of his returns and must file a voluntary disclosure with the IR.
“How can Andy get ahead with the current year if he now has to pay an additional amount of tax for a past year?” Lisa wonders.
TMNZ can assist taxpayers who owe an increased amount of tax as a result of a voluntary disclosure or audit.
Tax pooling provides 60 days from the date the IR reassessment notice was issued to buy the tax payment he needs and send it to the IR.
The different tax types available to purchase are historic income tax payments, deferrable tax, and agreed delay tax, as well as other tax types such as GST, RWT, PIE, FBT, NRT, and DWT.
Lisa can use TMNZ to reduce the interest and late payment penalties cost of Andy’s voluntary disclosure.
For the current tax year, Lisa can set up either a Flexitax or Tax Finance arrangement to give him more flexibility and time to pay (up to 75 days past his terminal tax date for that tax year).
Lisa has other clients that are medium-large taxpayers with big bills and paydays. TMNZ’s Tax Deposit solution can help them.
Other advantages of tax pooling
There are several other advantages to using a tax pool:
- Excess funds paid into the pool can either be used for future dates and any other tax types where a reassessment has not been issued.
- There’s the option to sell surplus tax to a taxpayer who has underpaid to earn additional interest.
- The refund process is much faster than directly through the IR (within three to five days, and without having to file a return for the year).
Take back control
Take control of your tax management with TMNZ tax pooling — a more convenient way to meet your provisional tax obligations.
We offer solutions for all kinds of businesses and financial situations. If you’re new to paying provisional tax, check out our resources on managing tax and business cashflow here.
Ask your accountant about tax pooling options today, or get in touch with our team to find out more.