What can you do to meet your provisional tax obligation if you are under cash flow pressure? Companies like TMNZ can help.

Welcome to 2025 and the second instalment of the provisional tax (15 January 2025) is fast approaching. At this time of the year, cash flow is often tight with GST also due on the same day. What can you do to meet your provisional tax obligation if you find your business under cash flow pressure? One of the simplest solution is to use tax pooling offered by companies like Tax Management NZ (TMNZ ). It is surprising easy to set up and give you the peace of mind that you have paid your provisional tax on the due date.

Tax pooling is a system offered by companies like TMNZ that helps businesses and individuals manage their provisional tax obligations more flexibly and cost-effectively. It operates within the framework of the Inland Revenue Department (IRD) rules and provides significant benefits to taxpayers.

How Tax Pooling Works:

1. Pooling Provisional Tax Payments: Taxpayers make their provisional tax payments into a "tax pool" managed by the tax pooling intermediary instead of directly to the IRD.

   
   

2. Offsetting Underpayments and Overpayments:

   
   

   • If a taxpayer has overpaid their provisional tax, they can sell the excess tax in the pool to other taxpayers.

   • If a taxpayer has underpaid or missed a provisional tax payment, they can purchase tax from the pool to offset their liability with the IRD.

     
     

3. Match IRD Dates: Purchased tax from the pool is backdated to the original due date, avoiding IRD late payment penalties and reducing interest costs.

   
   

Benefits of Tax Pooling:

• Reduced Interest Costs: Tax pooling intermediaries charge lower interest rates compared to IRD's use-of-money interest (UOMI) for underpayments.

• Avoidance of Penalties: By purchasing tax dated to the original due date, taxpayers avoid IRD penalties for missed or late payments.

• Flexibility: Taxpayers can better manage cash flow by deferring payments by paying instalments or making lump-sum payments without the pressure of exact provisional tax estimates.

• Efficient Use of Surplus Tax: Businesses with overpaid tax can earn a return by selling their surplus tax in the pool to other taxpayers.

  
  

Common Use Cases:

• Unexpected Profits: If a business earns more than expected and owes additional tax, it can buy tax from the pool to cover the shortfall.

• Cash Flow Challenges: Businesses with temporary cash flow issues can delay provisional tax payments without incurring IRD penalties.

• Tax Audits or Reassessments: Tax pooling can be used to meet tax obligations arising from a reassessment by the IRD.

  
  
  
  

If you’re considering tax pooling, it’s wise to consult with your accountant or tax advisor to determine the best approach for your specific circumstances.