Utilising future tax to create working capital in the real estate industry
Working scenario: Bay Vista Real Estate
The situation
Emma runs a real estate agency in Auckland with 12 agents. The business experiences significant income fluctuations, with summer months (December-March) typically generating 60% of annual revenue.
The challenge
During the 2024-25 tax year, Bay Vista faced:
- peak income during the summer months
- large commission payments to agents in December/ January
- lower winter income but consistent overhead costs
- two of their provisional tax payments due during quieter months
- a preference for flexibility to withdraw funds if new opportunities arose.
The solution
Emma chose a TMNZ solution which allowed her to:
- delay payment of provisional tax due in August until a time when the business was earning revenue
- deposit $180,000 during the peak summer months:
- $100,000 in December
- $80,000 in January
- earn interest on deposited funds
- maintain flexibility to withdraw funds for a new investment opportunity
- ask TMNZ to allocate tax to the correct payment dates once the business’s income tax liability is known.
The results
Emma continued her business growth plans, while she also:
- earned interest on deposits in excess of what her bank was offering
- better matched tax payments to income patterns
- reduced her stress during quieter months
- protected her working capital during winter
- simplified the tax planning process
- created a tax savings discipline for the business
- rested easy knowing no IRD interest or penalties had been incurred.
Going forward, the business can use TMNZ annually as part of growth plans and cashflow strategy.
Your key takeaway
By matching peak periods with future planning, you can earn interest and create a facility to fund business growth when opportunities arise.
For more on how our tax solutions can help your business, go here.
*This scenario is a fictional example created to demonstrate how tax management solutions work to meet unique circumstances in a range of industries.
Managing uncertainty in tax and costs in the construction industry
Working scenario: Wilson Construction.
The situation
James operates a commercial construction company in Hamilton with 45 employees. The company experiences significant variations in monthly income based on project completion milestones. If clients pay late, this further stresses cashflow.
The challenge
For the 2024-25 tax year, Wilson Construction faced:
- uncertain provisional tax obligations due to uncertainty on when income will be earned
- a large variation between estimated profit ($1.8M) and actual profit ($2.9M) when a project was delivered ahead of schedule in the 2025 financial year, rather than the 2026 financial year as expected
- cashflow regularly tied up in materials and labour costs
- Inland Revenue’s prescribed instalment dates that were not aligned with project payment schedules.
The solution
James opted to manage their tax payments through TMNZ because:
- TMNZ allowed flexible payment dates throughout the year
- the company could make 20+ smaller payments instead of 3 large instalments
- they made payments after receiving project milestone payments
- there was no need to estimate their annual tax liability upfront
- they could change payment amounts at any time based on actual cashflow.
The company made 24 payments ranging from $15,000 to $45,000. They timed payments to follow major project milestone payments and adjusted payment sizes based on project profitability. The total tax paid was $812,000.
The results
James enjoyed better cashflow management, as well as:
- reduced stress around provisional tax deadlines
- no Use of Money Interest charges or late payment penalties
- maintaining a strong working capital position
- better aligned tax payments with business income patterns
- avoiding drawing on construction bonds or expensive bank facilities.
Your key takeaway
Using TMNZ solutions, and seasonal financial planning, tax obligations can be managed to align with business and project outcomes, not IRD deadlines.
For more on how our tax finance solutions can help your business, go here.
*This scenario is a fictional example created to demonstrate how tax management solutions work to meet unique circumstances in a range of industries.
Reducing the cost of funds for a dairy farm
Working scenario: Henderson Dairy Farm.
The situation
The Henderson family operates a 650-cow dairy farm in Southland. They recently invested in a new milking shed automation system and expanded their herd, creating irregular cash flow patterns during the upgrade period.
The challenge
In the 2024-25 season, they faced:
- $280,000 investment in automation equipment
- an additional $150,000 for herd expansion
- a provisional tax payment of $165,000 due March 2025
- expected lower income for the next few months, picking up in October
- bank facilities already used for farm improvements
- needing to maintain working capital for winter feed.
The solution
The Henderson’s worked with TMNZ to:
- finance the full $165,000 provisional tax payment
- secure 5.6% interest rate (vs IRD’s 10.88%)
- structure repayment to align with improved monthly income
- use TMNZ’s tax finance solution as an alternative funding source.
The results
The Henderson’s saved approximately $4,950 in interest compared to IRD and bank overdraft rates. They also:
- preserved their working capital for winter feed purchases
- maintained a good standing with existing bank
- protected their new automation investment
- avoided selling stock at suboptimal time
- better aligned provisional tax payments with their income cycle.
Your key takeaway
By creating a long-term plan to address variabilities in cashflow, you can plan ahead and secure lower interest on funds to cover costs.
For more on how our tax solutions can help your business, go here.
*This scenario is a fictional example created to demonstrate how tax management solutions work to meet unique circumstances in a range of industries.
Can AIM taxpayers use tax pooling?
A taxpayer cannot use tax pooling to defer payment of, or settle, provisional tax instalments calculated under the accounting income method (AIM).
However, TMNZ can help AIM taxpayers with terminal tax or when they receive a notice of reassessment.
What does tax pooling legislation say about AIM?
Legislation in the Income Tax Act 2007 clearly states that a taxpayer can use tax pooling funds to satisfy “a provisional tax liability other than under the AIM method”.
Please refer to sections RP17-RP21 of the Act for further information.
Why IR doesn’t allow tax pooling to assist with AIM payments?
Inland Revenue (IR) says tax pooling manages taxpayers’ uncertainty around provisional tax payments and their exposure to interest.
Consistent with this objective, tax pooling is not currently available for tax types where someone has certainty of their liability at the time of payment (for example, GST).
Given the payments made under AIM are calculated on actual accounting profit, taxpayers will have certainty about what's due.
As such, it's IR’s view that it's not appropriate to allow tax pooling for provisional tax payments calculated under AIM.
What does that mean for you?
IR will reject the use of any tax pooling funds to satisfy an underpaid AIM instalment. As a result, late payment penalties and interest will continue to show on a taxpayer account.
They will, however, accept the use of tax pooling funds to settle a terminal tax liability. The same applies if an AIM taxpayer has additional tax to pay after receiving a notice of reassessment.
Please be mindful of these facts when entering arrangements with TMNZ.
It’s also an important consideration before electing to use AIM to calculate provisional tax.
That's because paying tax when income is earned is not necessarily the same as when cash is received.
If someone is unable to pay an AIM instalment on time or in full due to cashflow constraints, the safety net of tax pooling will not be available to reduce their exposure to interest and eliminate late payment penalties.
Feel welcome to contact us if you have any questions.