Tax Drawdown: Use your tax payments as a line of credit

Every now and then, businesses can encounter cash flow struggles, whether you have overdue invoices or an unexpected bill to pay. When this happens, it’s typical to ask your bank for help. But did you know there’s an easier, cheaper way?

As a TMNZ customer, you can access funds you have paid into our tax pool at any time. You can draw out your deposits as an affordable line of credit without the headache of a loan application, conversation with a bank, or Inland Revenue (IRD) paperwork and still keep your original tax deposit date.

How it works

Imagine your business is suddenly hit with a big cost and you need some quick cash. By getting in touch with TMNZ, you can access the money you’ve already paid into and held in our pool. 

You can draw down the funds on a temporary basis, and our flexibility helps you solve a short-term business challenge in a simple, cost-effective way. 

TMNZ Tax Drawdown allows you to use your tax payments in the pool as collateral to take out funds at attractive interest rates. You can request money at any time and it will land in your account within three to five business days (provided AML requirements are met). 

The benefits

Tax Drawdown puts you in control. You can borrow money for a minimum of four weeks or a maximum of up to 75 days after your terminal tax date. Once you’ve paid us back, we can continue to hold those tax payments in the pool (which will be available for a future drawdown) or transfer the payments to the IRD to meet your tax liability. 

Small businesses and larger companies alike can tap into Tax Drawdown, and there’s no limit to how much of your tax deposit you can withdraw.  

If your current tax pool doesn’t do drawdowns, fear not. You can transfer your tax pool payments to us and kick-start the process immediately. 

While Tax Drawdown is a bit like a line of credit, we don’t charge line fees or establishment fees like the banks.  

TMNZ can also offer more competitive interest rates than the banks. Our rates are the same as our finance rates, which are much closer to the cost of a home loan than a small business loan. Interest costs depend on how much money you take out and the duration of your withdrawal and you’re only charged for the period you use the funds. 

Kathleen Payne, Director of Strategic Partnerships at TMNZ, says Tax Drawdown can be a business lifeline. 

“It’s really useful for businesses that need to make a capital investment, buy stock, or simply position themselves for the rest of the year. People can use our tax pool to their advantage and it’s so easy to do, with interest costs limited to the time they’re using the funds. It’s another working capital option for businesses, particularly in an environment where cash flow is causing a lot of constraints.” 

How to use Tax Drawdown

Accessing your money is a painless process. Get in touch with us or ask your tax adviser to call or email our team.

Kathleen says Tax Drawdown applications are “relatively simple” and can be made multiple times a year.  

“A small amount of information needs to be provided. We ask how much money you need and how long you need it for. We then work out your interest rate, finalise the terms, and get it signed.” 

Kathleen says Tax Drawdown can help businesses and the New Zealand economy by freeing up money for investment and growth. 

“If you think about what businesses use the funds for, it’s additional spending in the economy. Tax Drawdown enables people to use money at a reasonable cost to make capital investments, investments in staff, or meet a market challenge. 

“All of these things help businesses survive and thrive, and it has a circularity for the whole economy,” she says. “It’s money going back into the business community while helping companies meet their tax liability. So everyone’s a winner.” 


In need of flexible, affordable financing? Contact our team to take advantage of Tax Drawdown today.

Image: Flooded road

Cashflow relief for farmers impacted by flood or drought

Image: Flooded road

Those impacted by flooding in Canterbury or drought elsewhere in New Zealand have another option to manage their cashflow.

It’s called tax pooling.

It lets taxpayers defer their upcoming provisional tax payments to a time that suits them, without incurring interest (currently seven percent) and late payment penalties from Inland Revenue (IRD).

The service – which has been operating with the blessing of the taxman since 2003 – is available through an approved commercial provider such as Tax Management NZ (TMNZ).

The impact of extreme weather

The Government has declared the recent flood in the Canterbury region as a medium-scale adverse weather event.

As those in this part of New Zealand assess the damage and begin the clean-up following the large deluge of rain, a big dry is beginning (or, in some cases, continuing) to bite other parts of New Zealand. The drought has been classified as a large-scale adverse weather event.

Farmers impacted by these contrasting weather events are being encouraged to act early and assess their options if they need assistance.

For those battling drought, some tough decisions around stock and feed will need to be made. In the Canterbury region, flooding only compounds the financial pressure as many were also dealing with drought beforehand.

Cashflow will be important during this difficult period.

Help is available

Managing tax payments will be a key consideration in managing cashflow too.

IRD, to its credit, is exercising some discretion.

It will allow farmers and growers affected by the Canterbury flood to make early withdrawals from the income equalisation scheme.

For those whose current or future income will be significantly affected by drought, IRD will allow late deposits for the 2019-20 income year up to 30 June 2021.

Early withdrawals are also available in the case of a medium-scale adverse event or if someone is suffering serious hardship.

Please note a taxpayer must satisfy certain criteria for IRD to exercise its discretion around the income equalisation scheme.

There's also the option of re-estimating provisional tax.

However, while that allows someone to get a refund of tax they have paid earlier in the year, it does come with some risk.

Free up cashflow by deferring payment of provisional tax

Farmers growers with a May balance date are due to pay their the final instalment of provisional tax for the 2020-21 income on 28 June.

For a small interest cost, someone can use TMNZ to defer this payment.

We make a date-stamped tax deposit to IRD on behalf of a taxpayer on 28 June and the taxpayer pays us when it suits their cashflow.

A taxpayer can either pay the full tax amount at a date of their choosing or enter an instalment arrangement.

When a taxpayer satisfies their arrangement with TMNZ, IRD will treat it as if the taxpayer had paid on time. Any interest and late payment penalties showing on their account will be remitted.

A taxpayer has up to 12 months to pay their 28 June provisional tax with TMNZ.

TMNZ’s interest cost is much cheaper than what IRD charges when someone pays their tax late.

Please click here to register with TMNZ. Alternatively, feel free to contact us if you have any questions.

Three tax pooling solutions for businesses impacted by COVID-19

Image: Solved Rubix Cube.

IRD has announced a suite of tax relief measures during COVID-19 to help struggling businesses.

However, a tax pooling provider such as Tax Management NZ (TMNZ) offers some solutions of its own for those wishing to manage cashflow, facing uncertainty about their profitability or needing access to funds during this difficult economic time:

  • Provisional tax payment deferral.
  • Reducing exposure to interest if someone miscalculates their income tax.
  • Using tax pool deposits as a line of credit.

Below we explain how these three tax pooling solutions work. We also compare them to IRD’s equivalent offering at this time.

1. Provisional tax payment deferral

Alternative to

IRD’s remission of interest if someone is unable to pay their tax on time.

Suitable for

Businesses who cannot pay on the prescribed instalment date due to cashflow constraints.

Drawback of IRD’s offering

At first glance, this looks pretty good. Even more so given IRD has the power to remit interest all the way up to 25 March 2022.

However, dig deeper and you will see its ability to wipe interest if a taxpayer fails to make a tax payment due after 14 February 2020 on time because of COVID-19 is discretionary.

That’s important to note.

Whenever discretion is in the mix, inconsistencies can arise and we have seen a number of these already.

There are also a few hoops to go through in terms of:

  • Requesting the relief as soon as possible.
  • Proving eligibility.
  • Providing accounting and financial information to support a claim.
  • Maintaining the agreed payment plan set by IRD to ensure there is no default. Remember, this is not a tax holiday. There is an obligation for someone to pay what they owe as soon as practicable.

TMNZ’s solution

For those wanting certainty of outcome or less hassle, tax pooling is a better option.

Indeed, someone wanting to manage their provisional tax payments in a way that better aligns with their cashflow requirements can defer an upcoming payment to a date in the future with TMNZ, without having to worry about late payment penalties.

For a taxpayer with a 31 March year-end, they would have up to 22 months from the date of the first instalment (28 August 2020) of the 2020-21 income year to settle their provisional tax.

That means payment would not need to be made until mid-June 2022.

Acceptance is guaranteed with tax pooling. No security or additional information is required.

There are a couple of ways to pay with TMNZ.

Someone can pay a fixed interest fee upfront and then the core tax at an agreed future date or make a one-off payment of interest and core tax when they figure out their liability.

They also have the option of paying what they owe in instalments.

TMNZ’s interest is much cheaper than the seven percent IRD otherwise charges if someone does not make a payment on time.

This cost may be negligible given a tax pooling arrangement is easier to set up, offers more payment flexibility and gives someone peace of mind at an uncertain time.

2. Reducing exposure to interest if someone miscalculates their income tax

Alternative to

IRD’s remission of interest on underpaid provisional tax for the 2020-21 income year for those using the standard uplift or estimation methods who are impacted by COVID-19.

Suitable for

Businesses who are uncertain how their year will play out due to the global pandemic.

Drawbacks of IRD’s offering

IRD’s recently announced relief is only for smaller- and medium-sized businesses with a liability of less than $1 million who can demonstrate their ability to forecast what they owe for the year at one or more provisional tax dates was “significantly adversely affected” by COVID-19.

In other words, any underpayment needs to be due to a change in circumstance that is totally out of their control (i.e. the border reopening), not human error. Those who have tools to forecast what they owe – as well as those who make no effort to forecast – are unlikely to qualify for the remission.

Someone not impacted by COVID-19 is expected to pay on time and in full.

The other thing to note is IRD will decide who qualifies for relief on a case-by-case basis after a taxpayer files their return for the 2020-21 income year.

Again, this is a discretionary power.

That poses a significant risk if someone is touch and go as to whether they meet the criteria for assistance. After all, if IRD declines their application, they will be up for IRD interest from the date of their first instalment for the 2020-21 income year.

TMNZ’s solution

A taxpayer facing uncertainty over their profitability for the upcoming year who does not want to pay provisional tax based on an uplift calculation from a pre-COVID-19 time has another option if they are unlikely to qualify for this remission.

They can make their provisional tax payments based on how their year is unfolding – and then use TMNZ to wipe late payment penalties and reduce the interest cost they face if they end up underpaying their tax.

We offer significant savings on IRD interest.

TMNZ let’s a taxpayer apply provisional tax that was originally paid to the tax department on the date(s) it was originally due against their liability.

As such, IRD treats it as if they paid on time once it processes this their tax pooling transaction. This eliminates any late payment penalties.

A taxpayer has up to 75 days from their terminal tax date for the 2020-21 income year to pay any underpaid provisional tax with TMNZ.

3. Using tax pool deposits as a line of credit

Alternative to

IRD’s temporary tax loss carry-back scheme.

Suitable for

Taxpayers who hold deposited funds in TMNZ tax pool in urgent need of cash.

Drawbacks of IRD’s offering

Under the temporary tax loss carry-back scheme, a taxpayer who expect to make a loss in either the 2019-2020 or 2020-2021 income year will be able to estimate that loss and use all (or a portion of it) to offset any profit made in the previous year.

This allows those who need cash urgently to receive a refund of any income tax paid in the previous year.

However, some taxpayers are nervous about using the regime as they are uncertain how the 2020-21 income year will play out.

There are consequences if they overestimate the loss they are carrying back and this results in tax payable in the previous profit year.

In a nutshell, someone will incur IRD interest all the way back to the first instalment date of the profit year.

This is because they have to file an estimate with IRD in order to use the scheme. That subsequently takes them out of the interest concession rules that apply for standard uplift taxpayers.

TMNZ’s solution

Tax pooling allows someone short on cash to temporarily withdraw deposits they hold in the pool.

A taxpayer receives from TMNZ an amount equal to their deposited funds (minus an upfront interest cost), while having the option to restore those deposits at their original deposit date(s) when their cashflow situation improves.

Unlike the temporary tax loss carry-back scheme, there is no need to be in a loss position to access funds.

The ability to stay within the standard uplift interest concession rules also remains intact as there is no requirement to file an estimate with IRD.

Someone needs to give consideration to their imputation credit account balance before withdrawing any tax pool deposits.

It’s also important to note that funds taken out of the pool switch from own to purchased funds.

That means to reinstate the deposit(s) at their original dates, a taxpayer must have paid back and transferred the core tax from the tax pool to their account at IRD within 75 days of their terminal tax date for that tax year.

About TMNZ

TMNZ operates with the blessing of IRD and under legislation set out in the Income Tax Act 2007 and Tax Administration Act 1994.

Not only are we New Zealand’s first and oldest tax pooling provider, it was our company founder, Ian Kuperus, who came up with the concept and worked with officials to set up a framework.

TMNZ has been creating a better tax environment for businesses since 2003.

For more information about tax pooling, please feel free to contact us.