How TMNZ tech takes the pain out of tax
As New Zealand’s first ever tax pool, we’re proud of our long history of innovation. It’s at the heart of everything we do, and we’re always looking for new ways to simplify tax.
Technology has been at the forefront of our efforts, whether it’s rolling out new features for our customers, adding new functionality online, or partnering with forward-thinking digital platforms.
Recently, we’ve rolled out some amazing tools to help our customers and their accountants easily manage income tax.
Discover our top tech solutions to help you take the pain out of tax time, including tools to cut down on admin, share data between platforms, and get instant information on things like tax swaps.
Direct Inland Revenue Integration
TMNZ’s online dashboard is fully integrated with Inland Revenue (IR), meaning taxpayer information held by IR can be seamlessly shared on our platform, to make accountants lives easier.
In the past, accountants had to deal with multiple systems and spreadsheets to find accurate IR information. Integration means this admin work is no longer required.
Inland Revenue and TMNZ systems are directly connected so that key IR information is automatically populated on our dashboard. All relevant IR data, including Residual Income Tax figures, filing dates, and direct IR transactions appear on the TMNZ dashboard once you’ve logged in.
Thanks to IR integration, accountants can save time and reduce admin work. Direct IR integration also removes the risk of manual errors as clients populate information from one platform to another, making the process much more efficient.
IR information is fed into our calculator to help you determine your (or your client’s) tax position as quickly as possible.
Kathleen Payne, Partnerships Director at TMNZ, says:
“Following IR integration, all the data you need for your calculations goes straight onto our dashboard. All you have to do is put in the current year’s position that IR might not know yet, and everything is calculated without further data entry.”
If clients need any assistance with our direct IR integration, then TMNZ’s friendly support team is on hand to help. And you can find out more about IR integration here.
TaxLab integration
TMNZ is now fully integrated with TaxLab, bringing New Zealand’s leading accountants a seamless, all-in-one solution for managing tax payments to enhance provisional tax productivity, so your practice can grow.
We know that juggling multiple platforms eats into valuable time that could be better spent elsewhere – and manual processes can create costly compliance issues, for you and your clients.
Our new TaxLlab integration eliminates these pain points through automated provisional tax workflows, real-time payment visibility and bulk processing. With the click of a button you can calculate complex tax positions, view payment statuses and send reminders and tax pooling quotes, all from the one platform.
“Accountants will get a complete picture of all TMNZ transactions sitting against their clients’ tax year,” Kathleen says.
Like the IRD integration, the setup couldn’t be simpler:
- log in to TaxLab, go to ‘Settings’, and add TMNZ as a connection
- you’ll then be directed to TMNZ to log in and confirm
- from there, you’ll be able to view TMNZ tax pooling information, including a full history of purchases, deposits, transfers, and tax payments.
Integration with Taxlab reduces the time and effort spent sharing information across the two platforms, giving tax agents even more time for their valuable client work.
Group Optimiser
If you’re a busy accountant in public practice looking to manage the tax year for groups of clients, TMNZ’s Group Optimiser tool is tailor-made for you.
This innovative feature enables accountants to calculate the position of several taxpayers and create multiple transactions at once.
Used alongside IR integration, Group Optimiser can make tax calculations even simpler.
Kathleen adds:
“Instead of having to prepare spreadsheets for each member in a group and then decide who has overpaid or underpaid tax, agents can use our calculator to enter a small amount of information. Then, at the click of a button, Group Optimiser calculates how to use the tax across the group in the most effective way.”
Group Optimser is ready and waiting on the TMNZ dashboard. All you need to do is log in.
Upcoming Deadlines
The Upcoming Deadlines function on the TMNZ dashboard is another of our top tech features.
For accountants managing several tax pooling clients, the Upcoming Deadlines feature can be used to track taxpayers ahead of key dates.
Offering total visibility over client tax positions as deadlines approach, the tool suggests prompts and actions to finalise the year.
“It also gives accountants a control list to work through their clients and ensure everything has been finalised,” Kathleen says. “It’s a workflow and control function and will remind advisers about everything they need to do for their clients.”
Automated Tax Swaps
TMNZ’s automated Tax Swaps is our latest dashboard feature, enabling clients to get instant quotes and process swaps below the threshold*.
Tax Swaps allow clients to even out their provisional tax payments if they have overpaid on one date and underpaid on another, saving on IR interest costs.
With our automated Tax Swap service, clients will benefit from faster, more efficient processing
The best part? The Tax Swap function is DIY.
“It’s a self-service system,” Kathleen explains. “If a client knows the swap they want to do, our system will automatically say, ‘Yes, you can do it, and this is the interest you’ll get’. You won’t have to interact with us at TMNZ. You can do-it-yourself.”
“It’s super efficient,” she adds. “Clients will have certainty of the outcome, they’ll know how much interest they’ll have to pay, or what they can earn, in an instant.
“At TMNZ, we’re all about flexibility, and empowering our customers to make decisions at a time that suits them.”
Automated Tax Swaps launched recently, following our pilot with TMNZ’s Early Adopter community in April.
Become an Early Adopter
Are you part of TMNZ’s Early Adopter community, who gets first access to all our latest tech features?
Early Adopters enjoy the benefits of our new products and enhancements before anyone else, with support and training to help you make the most of new tools.
As an Early Adopter, you can share feedback and experiences to help us develop the best tech possible for accountants and clients.
“We love working with people to create the best tax solutions possible,” Kathleen adds. “Our Early Adopters are highly motivated, creative people who want to help us get even better.”
If you’re a tech savvy tax pooling user in an accounting firm, become an Early Adopter in a few simple steps:
- login to your dashboard
- Select your firm
- select ‘Early Adopter Programme’, from the left-hand menu
- review and accept the Terms and Conditions presented
- click the ‘Sign up’ button.
To learn more about TMNZ’s latest tech developments, head to our Innovative Tax Technology page or contact our support team today.
*the threshold is subject to change depending on market 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.
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.
Syncing provisional tax to cashflow
As a self-employed painter and decorator, Bart Taylor knows full well how business owners can get themselves into strife if they don’t plan for their tax obligations.
He speaks from his own personal experience.
That’s why Bart is happy to talk about how TMNZ enables him as a self-employed tradesperson to take the stress out of having to pay provisional tax on dates dictated by Inland Revenue (IR).
TMNZ offers Bart the flexibility to make the payments when it suits his cashflow.
As someone who doesn’t always get paid every week, that’s important because it offers his business some breathing space while he waits for the money he’s earned from completed jobs to land in his bank account and ensures that other important invoices can be paid in the meantime.
A bit about Bart
Bart owns and operates his own business in Christchurch.
He’s a one-man band and that’s the way he likes it. Plus, most of his work means he does not require a crew, although he will occasionally use contractors when required or on larger jobs.
Bart has been his own boss since 2013, when, at the age of 24, he decided to make a go of this painting lark on his own. The market in the Garden City was awash with painting gigs during the rebuild and becoming self-employed seemed like a low-risk move.
Fast-forward nearly eight years and his gamble has paid off. He is enjoying the benefits that come with self-employment and, as a husband and father in a young family, the better work-life balance he has achieved.
Tough tax lessons
Yet that’s not to say that everything has been a bed of roses during that time.
“Becoming self-employed has been a bit of a rollercoaster. Lots of learnings, lots of difficult times, hard times,” says Bart.
“First and foremost, I’m a tradesman, so I am a worker. The back office, the organisation, the financial side of things is not my strong point. With the tax side of self-employment, I managed it very poorly for years because I was so young.”
Like other business owners, Bart wasn’t as prepared as he should have been and was “stung” in his second year of trading. That was when two years’ worth of tax was due. Ouch.
He admits having to pay provisional tax was “rough for a little while”.
“In the trade industry, you don’t always get paid every week and you need cashflow to run your business,” explains Bart.
“My accountant saw there was a risk of if we paid that tax bill in full, that I might fall short in other areas and he wanted to make sure that my relationship with my trade suppliers stay good and that the invoices I need to pay get paid on time, not just the IR ones.
“He recommended Tax Management NZ and that freed up cashflow.”
Breathing space from IR to manage cashflow
That’s because TMNZ gives Bart the flexibility to pay his provisional tax when it suits his business, without the consequences of steep IR interest and late payment penalties.
It operates with the blessing of the taxman, too.
TMNZ makes a date-stamped payment to IR on Bart’s behalf on the date his provisional tax is due. Bart pays TMNZ at a time when it suits his cashflow.
TMNZ transfers the date-stamped payment to Bart’s IR account and IR treats it as if Bart himself has paid on time. This eliminates any IR interest and late payment penalties showing on his account.
“Sometimes the option of TMNZ, to be able to borrow some money for a short period of time, to make sure you hit that IR deadline, frees you up with your cashflow until that payment [you are waiting on] comes through,” says Bart.
“The fee of using Tax Management NZ is so low and affordable in comparison to the failings of if you ran out of money in that time, or the scramble and the stress, so it’s definitely worth it.
“It’s changed my perception around making these tax payments. It takes the stress off of it.”
And how does dealing with TMNZ compare to dealing with IR?
“You get a bit more of a personal touch with Tax Management NZ because you get a prompt response and it’s not a cookie-cutter [reply].”
Bart is one of many small business owners throughout New Zealand who benefits from the provisional tax flexibility TMNZ offers. Get in touch for more information about our service or if you have any questions. We're happy to help. Alternatively, register with TMNZ to explore tax pooling for yourself.
Cashflow relief for farmers impacted by flood or drought
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.
Bright-line test: Don’t get caught by ‘change-of-use’ rule fishhook
Anyone who lives away from their main home for more than a year will be liable to pay income tax on any profit they make from the sale of a residential property sold within the new bright-line period.
That’s because of the introduction of a ‘change-of-use’ rule that came into effect when the Government amended the legislation earlier this year, in its bid to cool rampant property prices in New Zealand.
For salary and wage earners who are renovating their house, away on secondment, or looking to build a property, a hefty and unpleasant tax bill may be lying in wait as a result of this fishhook.
Detailed explanation
Under the bright-line test, an exemption applies if the property a person is selling is their main home.
Prior to 27 March 2021, a property was considered a main home if the owner had lived in it or used it as a main home for at least 50 percent of the time that they owned it.
However, under the new bright-line rules – which apply to a residential property that someone purchases on or after 27 March 2021 and sells within 10 years – homeowners can only be away from their main home for a continuous period of up to 365 days.
Homeowners must treat the days they are away from their main home as ‘non-main home days’.
If someone is away for more than 12 months and then later sells their house within 10 years of acquiring it, the main home exemption will not apply.
This is the 'change-of-use' rule.
It means a person will have to pay income tax on the profit they make from that sale for the period they were not using the property as their main home.
Example
A homeowner sells a property six years after the start of the 10-year bright-line period.
During that six-year bright-line period, they had moved out and rented this house for 15 months while they lived and worked in another part of New Zealand.
Any profit will be split between the 15 months and remaining 57 months during the bright-line period. The homeowner is liable to pay tax on the amount of profit apportioned to the 15-month period.
The impact for salary and wage earners
This has potential – and unpleasant – tax ramifications for salary and wage earners who:
- Renovate their home.
- Live away from their main home due to being on secondment.
- Purchase a section with the intention of building a property, especially if it is going to take more than a year after buying the section to move into their newly built house.
The income a salary and wage earner receives from selling a property is added to their other income sources for that year.
For most, given the eye-watering sums some houses are currently fetching on the market, this will force them into the top tax bracket of 39 percent for that year. The top tax bracket applies to those earning income above $180,000.
There are potential provisional tax ramifications, too.
If the income tax liability from the sale of a property is $60,000 or more, a salary and wage earner will need to pay this by 7 May to avoid incurring Inland Revenue (IR) interest – even if there was no obligation for this person to pay provisional tax during the income year they sell the property.
This is because they fall outside the safe harbour provision.
They can, however, use an IR-approved tax pooling provider such as TMNZ to reduce this interest cost by a notable amount. The savings can be significant.
They will also enter the provisional tax regime during the following income year due to the previous year's income tax liability being greater than $5000.
Anyone who expects to be away from their home for more than 12 months will need to keep accurate records of the number of days they live away from the property as well as any deductible expenses they wish to claim against the property's sale proceeds.
Seek advice
The rules around the taxation of property are complex.
As always, we recommend you speak to an accountant if you have any questions or wish to err on the side of caution.
Make IR interest, late payment penalties disappear
A missed or underpaid provisional tax payment often means a taxpayer is faced with a steep interest cost and potentially late payment penalties on top of what they owe.
However, tax pooling can make that go away.
A big frustration with Inland Revenue (IR) is that it expects taxpayers to pay the correct amount of tax on the dates it sets. No ifs, no buts.
Fail to adhere to this rigid timetable or underpay and you will face the consequences.
IR charges interest – 9.89% as at 8 May 2025 – from the date the payment was due until you pay the outstanding amount.
Late payment penalties may also apply as follows:
- One percent the day after payment was due.
- An additional four percent if the tax amount (including late payment penalties) remains unpaid after seven days.
A tax pooling provider such as TMNZ operates with the blessing of IR. It can be of assistance if taxpayers find themselves in this situation.
Where might this be useful?
In the event you missed your recent 7 May provisional tax payment – or any other instalment relating to the 2020-21 income year, for that matter – we can eliminate any late payment penalties for which you may be liable and significantly reduce the interest you pay.
You make your payment to TMNZ and we apply backdated tax that was paid to IR on the original date(s) it was due against your liability.
The taxman treats 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.
You have the option of making to TMNZ a one-off payment at a date of your choosing or making regular instalment payments towards your liability over a longer period.
TMNZ gives you up to 13 months to pay your 7 May provisional tax for the 2020-21 income year.
Is your 2020 terminal tax overdue?
You still have time to use TMNZ to reduce the interest cost and eliminate late payment penalties if you have outstanding provisional or terminal tax liabilities for the 2019-20 income year.
However, you will have to act quickly.
Tax pooling legislation gives taxpayers an additional 75 days past their terminal tax date to pay their terminal tax.
If your terminal tax for the 2019-20 income year was due on 7 April 2021, you would have until 15 June to settle owe with TMNZ.
Reassessed by IR
TMNZ can also assist with historic income tax payments and other tax types such as GST and PAYE if you receive a notice of reassessment from IR.
You have 60 days from the date the IR issues this notice to use tax pooling.
Please contact us if you have any questions.
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.
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.
Harrison Grierson mitigates provisional tax risk
For Matthew Fleming, provisional tax is risky business as it requires a degree of crystal-ball gazing and guesswork.
However, he chooses to mitigate that risk by depositing these payments into TMNZ's tax pool.
It's a “no-brainer” because it gives him a better return if he overpays provisional tax and reduces his interest and late payment penalty costs if he underpays.
More about Matthew Fleming
Matthew is the chief financial officer at Harrison Grierson, one of New Zealand’s leading engineering and design consultancies.
It has offices throughout Aotearoa and predominately provides services locally, with more than 350 staff on the books.
Remarkably, the firm is blowing out 135 candles this year. No one stands the test of time for that long if they ain’t good at what they do.
And Harrison Grierson is good at what it does. A quick peruse of the significant projects it has been associated with during its lifetime is a testament to that.
Provisional tax is 'difficult to predict'
However, like most businesses, it is not immune to the problems provisional tax poses.
Matthew admits calculating the amount of income tax Harrison Grierson must pay Inland Revenue (IR) requires guesswork as its cashflow is up and down at certain times.
He knows the lay of the land during the first quarter – but the rest of the year can go either way.
Matthew says:
“It’s hard enough to try and guess next month’s results, but when you’re having to guesstimate your final year’s tax liability accurately, [it] does take a certain degree of crystal-ball gazing. We try to project our income and where our costs are going to be and having to pay tax on that sort of basis is a little bit of a risk.”
Even more so when one considers the taxman’s wide interest spread. As at the time of writing, they charge 8.35 percent if someone underpays provisional tax and pay just 0.81 percent if they overpay.
In other words, provisional tax is difficult to get right and very expensive when someone gets it wrong.
How Matthew manages that risk
Matthew chooses to deposit Harrison Grierson's provisional tax payments into TMNZ's tax pool.
It's an account operated by an IR-approved tax pooling provider that allows taxpayers to combine their payments. The overpayments from some can then be used to offset the underpayments by others.
TMNZ's tax pool account sits at IR and is overseen by an independent trustee.
Harrison Grierson keeps its date-stamped tax deposits in this account until Matthew confirms its liability for the year. He then arranges for the transfer of these deposits to the firm's own IR account to satisfy what they owe.
If they have surplus tax remaining, he can earn additional interest by selling this to someone who has underpaid (subject to market demand).
Conversely, if not enough tax has been paid, Matthew can reduce the IR interest cost and eliminate any late payment penalties Harrison Grierson faces through purchasing the tax they require from another taxpayer and applying it against the company’s own liability when he arranges their transfers from the pool.
Matthew: 'TMNZ makes provisional tax easier'
Matthew is a big proponent of the benefit TMNZ delivers when his provisional tax calculations go askew.
He says:
“[Tax pooling’s] such a great service in terms of advantaging taxpayers when they are trying to estimate their liabilities and are struggling with it. The ability to get a return when you have overpaid and the ability not to pay such punitive penalty rates when you have underpaid makes it a no-brainer.”
As someone who is having to estimate revenue and costs a lot, Matthew finds it useful that tax pooling gives him the flexibility and control to make payments “as we see fit” based on how the financial year is unfolding, without any considerable downside.
He also likes that he can access refunds faster – and without having to file a return. TMNZ makes it simple for him to manage the payments of the different entities belonging to Harrison Grierson as well.
Matthew recommends tax pooling to other businesses, particularly those with seasonal or volatile income.
“What makes TMNZ an easy choice is it makes the whole provisional tax regime easier to deal with.”
Contact our team to learn how you too can take advantage of tax pooling.