More flexible ways of paying your tax

How does it work?

Tax Pooling was introduced by the government in 2003 to help taxpayers mitigate the financial consequences of getting their provisional tax estimations wrong. Tax intermediaries, such as Tax Management NZ operate tax pooling accounts with IRD. The funds are held with the Guardian Trust and transferred to IRD upon instruction from the tax payer. In IRD’s system the tax payment is recorded as being received on the date the tax was due despite when the amount was paid.

For example, Mr Brown’s second instalment of provisional tax was due on the March 28, 2018. At that time Mr Brown was experiencing some cash flow pressure so opted not to pay the instalment to IRD. By early May Mr Brown’s cash position had improved so he purchased the instalment via a tax pooling intermediary. IRD records the payment as being received on March 28.

In many instances, taxpayers cannot afford to pay their instalment in one lump sum. Use of tax pooling enables taxpayers to match their payments to cashflow. Tax Management NZ offers Flexitax where the taxpayer can spread the payments over time. In this scenario, Mr Brown could have opted to pay monthly amounts until the liability was cleared without the risk of IRD penalty or interest.

Other options

Tax deposit is useful where there is a group of tax payers such as a trading entity, family trust and individuals. Key benefits include:

■ Deposits made for the group, rather than for each taxpayer individually. Once the tax liability for each of taxpayers is established the funds are transferred to IRD accordingly.

■ Tax deposits can be returned within three to five working days if the cash is required.

■ Excess funds can be sold at competitive interest rates.

Some Tax Intermediaries also offer finance options to help you take control over future payments. Interest rates are competitive, approval guaranteed and no security is required.

The key to good tax management is understanding your tax position and adopting strategies to manage your cashflow, reduce cost and provide certainty.

Please contact your Crowe Horwath advisor to find out how we can assist you.

■ This information is general in nature and readers should seek specialist advise before making financial decisions.