This article was originally created for Hayes Knight (now Nexia Auckland).
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In a nutshell, instead of taxpayers paying their provisional tax payment to the Inland Revenue, they deposit their provisional tax payment with a tax pooling intermediary who then deposits that payment into a tax pooling account with Inland Revenue. When the taxpayer knows exactly how much they need for provisional tax for the year, they have the required amount transferred out of the tax pool into their own account with Inland Revenue. If there is a surplus, the taxpayer can either ‘sell’ it to another taxpayer (and generally receive ‘interest’ greater than Inland Revenue’s credit interest rate), transfer it to another tax type, (eg, GST) or leave it in the tax pool to apply to a future payment.
Another advantage of depositing your provisional tax with a tax intermediary is the ability to have it refunded at any time; unlike with Inland Revenue who often won’t refund any surplus until your tax return has been filed or at least an interim imputation credit account is filed.
Aside from the benefits that come from depositing into a tax pooling account, for those taxpayers who may find they have short paid their provisional tax they can ‘purchase’ the shortfall from the tax pool for less cost than the Inland Revenue’s debit interest rate and eliminate or reduce any Inland Revenue interest and late payment penalties.
The use of tax pooling really is a no-brainer. Contact your Hayes Knight advisor to discuss how you can get tax pooling working for you.