Make IRD interest, late payment penalties disappear

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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 (IRD) 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.

IRD charges interest – currently seven percent – 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 Tax Management NZ (TMNZ) operates with the blessing of IRD. 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 IRD 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 IRD 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 IRD

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 IRD.

You have 60 days from the date the IRD issues this notice to use tax pooling.

Please contact us if you have any questions.

COVID-19: IRD extends tax pooling deadline

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Updated 19 June 2020

Anyone impacted by COVID-19 will have 365 days after their terminal tax date to settle 2019 income tax arrangements with TMNZ, subject to meeting certain criteria.

IRD has used its new discretionary powers in s6I Tax Administration Act 1994 to extend the legislative deadline after recognising the cashflow difficulties some taxpayers face in the wake of the global virus and the Government’s response to it.

It means those with a terminal tax date of 7 April 2020 now have until 7 April 2021 to satisfy their Flexitax® or Tax Finance arrangements for the 2019 tax year.

Normally they have just 75 days after their terminal tax date to pay.

For taxpayers with a different terminal tax date, the extension to settle 2019 income tax will apply if their 75th day fell during a period that was impacted by COVID-19.

That means those with 15 January 2020, 7 February 2020, 7 March 2020 and 7 April 2020 terminal tax dates can request extra time to pay.

TMNZ welcomes IRD’s decision.

We wish to thank officials at the department for recognising the impact COVID-19 is having on our clients in relation to settling their 2019 income tax obligations within the required timeframe, as well as engaging with us to come up with a solution.

Eligibility criteria

The extension is subject to a taxpayer completing an application form and meeting a couple of conditions.

Firstly, they must have experienced – or expect to experience – a significant decline in actual or forecast revenue due to COVID-19 between January 2020 and July 2020 that either:

  • Prevents them from satisfying their existing arrangement for the 2019 tax year with TMNZ within the normal legislative timeframe; or
  • Meant that prior to this extension, they were unable to enter into an arrangement for the 2019 tax year with TMNZ.

If someone has received the Government wage subsidy, then this will satisfy the requirement of a reduction in revenue due to COVID-19.

If they have not, they will need to confirm that, after meeting their on-going business expenditure, they DO NOT have any of the following immediately available to pay their tax obligation:

  • Cash reserves
  • Insurance proceeds
  • Banking facilities.

Secondly, a taxpayer must have their TMNZ arrangement for the 2019 tax year in place on or before 21 July 2020. Our recommendation is that you set this up as soon as you can.

Thirdly, they will need to supply a cashflow forecast (or other comparable information if they are a small business).

IRD is asking us to collect and check this forecast as it wants proof that the taxpayer requesting an extension will have the funds available to meet their liability within the new timeframe.

Someone must supply this forecast even if they received the wage subsidy.

Many clients and tax agents will be able to access this through their accounting software. If someone does not have a cashflow forecast template, here is one that IRD sends those wishing to enter into a payment plan.

Exception to the cashflow forecast criteria

If a taxpayer intends to settle their tax liability before 21 July 2020, they DO NOT need to provide a cashflow forecast.

Payment frequency

We CANNOT accept arrangements to delay the payment of all your outstanding tax until the last day.

IRD wants taxpayers to make regular payments towards their liability. These payments can be made weekly, fortnightly or monthly.

Please contact us if you have circumstances that will make this difficult.

We can vary arrangements part way through if required.

A taxpayer's final payment must be received no later than 365 days past their terminal tax date for the 2019 tax year.

TMNZ’s interest rates for extension arrangements are the same as they are for other transactions.

Key dates to note

The 365-day extension deadline will differ slightly for taxpayers with the terminal tax dates in bold. Please be mindful of this when completing the application form.

For those whose terminal tax date for the 2019 tax year is 15 January 2020, 365 days after this date is actually 14 January 2021.

This is because 2020 has an extra day due to being a leap year.

For those whose terminal tax date for the 2019 tax year is 7 February 2020, their actual 365th day is 9 February 2021.

There are two reasons for this.

The first is that 7 February 2021 falls on a Sunday. The second is Waitangi Day (6 February) is ‘Monday-ised’ to 8 February.

For those whose terminal tax date for the 2019 tax year is 7 March 2020, their 365th day is 9 March 2021.

This is because:

  • The due date for this 2019 terminal tax payment defaulted to 9 March 2020 as the seventh was on a Saturday this year; and
  • IRD has applied the 365-day extension from 9 March 2020.

The application process

You can find the extension application form here. Please complete and send this along with your cashflow forecast to

Someone can send us the completed application form immediately and provide the cashflow forecast in the next three weeks.

Don't hesitate to call

The process around this extension has been introduced at short notice, so please bear with us.

As always, if you have any questions, feel free to contact your TMNZ account manager or our customer support team. We're here to help.

Disclaimer: This article is correct as at 19 June 2020. It is subject to change. TMNZ will update this article as and when it receives new information from IRD regarding the extension of the 2019 tax pooling deadline. We encourage readers to check this page regularly.

COVID-19: Additional tax relief announced

IRD will have the flexibility to change statutory tax deadlines as part of new measures announced to provide relief for taxpayers during the COVID-19 pandemic.

Plans are also afoot to introduce a temporary tax loss carry-back scheme and relax the tax loss continuity rules.

Today’s announcement by the Government recognises taxpayers require more assistance during what is proving to be a financially trying time.

It follows the tax relief measures they unveiled last month.

The Government plans to introduce legislation containing these changes during the week beginning 27 April.

Detail about the new measures is light at this stage. IRD is not answering specific questions as they’re currently engaging with the wider tax community to determine how things will work.

Nonetheless, below is a summary of what we currently know about these new tax measures.

Giving IRD the power to change deadlines

IRD will have greater flexibility to temporarily change statutory tax dates, timeframes and procedural requirements for businesses and individuals impacted by COVID-19.

This discretionary power will be introduced via an amendment to the Tax Administration Act 1994.

While IRD will publish further guidance in the coming weeks following consultation with tax advisors, this may enable them to extend the deadlines for filing tax returns and paying provisional and terminal tax.

At this stage, the power will apply for a period of 18 months.

Temporary tax loss carry-back scheme

This will allow a taxpayer expecting to make a loss in either the 2020 or 2021 tax year to estimate that loss and use it to offset profit in the previous year.

They will also receive a refund of the tax paid in the previous profitable year.

A taxpayer will be able to cash out all or some of their losses in the 2020 or 2021 tax year. Under current rules, they can only carry them forward to a year when they make a profit.

They will have the option of re-estimating their provisional tax after the date of their final instalment if they require additional time to work out any estimated loss for the 2021 tax year.

IRD will be consulting with tax advisors to ensure the law and administrative guidance are clear.

Please note the Government is also considering a permanent loss carry-back scheme. It would apply from the 2022 tax year onward.

IRD says there will be public consultation about this during the second half of 2020.

Relaxing the tax loss continuity rules

Currently, a company cannot keep its tax losses if it has more than a 51 percent change in ownership.

However, the introduction of a ‘same or similar business’ test will mean they can and help make businesses seeking investment to keep afloat during the COVID-19 pandemic more appealing to investors, thus improving their access to capital.

IRD says the criteria which must be met to satisfy this requirement is modelled on Australia’s rules. This means a company must continue in the same or a similar manner it did before any change in ownership.

Again, IRD is engaging with the tax community to ensure the law is clear.

The Government intends to pass legislation relaxing the tax loss continuity rules before the end of March 2021.

They will apply for the 2021 tax year onward.

More information

You can find out more about today’s announcement by the Government via the links below.

TMNZ will continue to update you with any new tax developments relating to COVID-19.

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AIM and tax pooling

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Legislation prevents taxpayers from using tax pooling to pay AIM provisional tax instalments.

We are issuing this reminder as IRD notifies us they are seeing several tax pooling transactions for these types of payments.

Section RP17B (2)(a) Income Tax Act 2007 says an amount held in a tax pooling account on behalf of a taxpayer can only be used to satisfy a liability for “provisional tax other than under the AIM method”.

That means that a taxpayer using this provisional tax method is unable to use TMNZ to defer an upcoming AIM instalment or reduce their interest cost if they fail to make this payment on time or in full.

IRD will reject these transfers.

The only time an AIM user can use tax pooling is for terminal tax – for example, an amount that’s due on 7 April – or if they receive a notice of reassessment from IRD.

This is something accountants need to be aware of before signing clients up to this option.

Why IRD doesn’t allow tax pooling

IRD says it is not appropriate for taxpayers to use tax pooling for AIM provisional tax instalments because payments under this method:

  • Have certainty.
  • More closely match income flows of a business.
  • Have no exposure to IRD interest (assuming a taxpayer pays the amount due in full and on time).

The Tax Pooling Intermediary Association, of which TMNZ is a member, and Chartered Accountants ANZ disagrees with that viewpoint. They say it assumes a taxpayer has the necessary cashflow to make their payments – but that is not always the case.

You can read both sides' argument here.

Usage of AIM

Uptake of AIM has been poor since it came into effect for the 2019 income year. According to IRD figures last year, only 1100 taxpayers are using this method. That works out to be about 10 percent of those eligible.

There are two IRD articles promoting AIM this year – yet curiously neither cites the current number of active users despite waxing lyrical about the benefits. This suggests it remains low.

TMNZ’s view is AIM is compliance heavy and will only suit a small handful of taxpayers.