How does tax pooling work?

Already know what you need? Talk to our team.

Tax pooling creates flexibility. Understanding how to use that flexibility is where the real value lies.

 

This page explains how tax pooling works in practice, from depositing tax into the pool through to the different ways taxpayers use tax pooling to manage provisional tax, improve cash flow and reduce costs

flourish-kitchen-4

Tax pooling is an Inland Revenue-approved framework that allows taxpayers to deposit their provisional tax payments into an account held by a registered commercial provider such as Tax Traders.

Payments deposited into a tax pooling account can then be transferred between taxpayers. This allows taxpayers to correct overpayments and underpayments at interest rates that are often more favourable than Inland Revenue's use-of-money interest rates, while accessing additional options that are not available when paying directly to Inland Revenue.

Tax pooling can also help taxpayers better align provisional tax payments with their business cash flow by providing options such as delayed payment arrangements and instalment plans. These solutions typically allow taxpayers to settle their tax at rates that are significantly lower than Inland Revenue's underpayment interest rate, while also removing exposure to late payment penalties.

While tax pooling can be used in a variety of ways, all tax pooling transactions rely on one key feature: tax deposited into the pool receives an effective date when it is paid.

That effective date stays with the tax when it is transferred, creating flexibility that only tax pooling offers provisional taxpayers. 

TT2-05-Meeting-1647 resized SQUARE

Depositing into the pool

Step one: Tax is paid into the pool

Tax is deposited into a registered tax pool and receives an effective date based on when the deposit was made. The funds are held in Tax Traders' tax pooling account at Inland Revenue and remain there until the taxpayer instructs Tax Traders to transfer them.


Step two: Flexible options unlocked

Once tax has been deposited into the pool, taxpayers gain access to a range of options that are not available when paying directly to Inland Revenue.

 

These options may include:

 

  • Accessing business funding
    Tax deposits can be used as security to access affordable business funding while retaining the benefits associated with the underlying tax payment.
  • Selling surplus tax
    Taxpayers who have overpaid provisional tax may be able to sell surplus tax to another taxpayer, often achieving a better return than would otherwise be available through Inland Revenue's credit use-of-money interest regime.
  • Moving tax between dates
    In certain circumstances, tax can be moved between provisional tax dates to help create a more efficient payment profile and improve a taxpayer's interest position.
  • Topping up underpaid tax
    Taxpayers who have underpaid provisional tax can access date-stamped tax through the pool to reduce interest costs and eliminate late payment penalties.
  • Faster refunds
    Tax deposited into a registered tax pool may be refunded before a tax return is filed, subject to the relevant legislative requirements and identity verification checks.

Step three: Tax is transferred to Inland Revenue

Tax is transferred from the tax pool to the taxpayer's Inland Revenue account once their tax liability for the year has been established.

 

Inland Revenue treats the transfer as though the tax was paid on the original effective date, which eliminates use-of-money interest and late payment penalties that would otherwise apply.

How tax pooling helps taxpayers

Flexible tax payment solutions

Tax pooling provides a range of flexible options to help taxpayers manage their income tax obligations, improve cash flow, reduce interest costs and resolve historic tax shortfalls.

TT-Maddy-James-Client-talk-outside

Delay tax payments

Tax pooling allows taxpayers to defer upcoming provisional tax payments and settle them at a later date. This can help businesses better align tax payments with cash flow, without having to face Inland Revenue use-of-money interest and late payment penalties. 

Learn more

What tax types can tax pooling assist with?

Tax pooling can generally be used to settle provisional tax (other than AIM) and terminal tax where there has been an initial assessment and the relevant legislative deadlines are met.

In certain circumstances, tax pooling may also be used to assist with liabilities arising from other tax types following an Inland Revenue audit, reassessment or voluntary disclosure.

Contact us to discuss your circumstances and whether tax pooling may be available.

inland-revenue-nz-photo SQUARE
TT-People-customer-service-Libby-phone

Additional Benefits for Depositors

Taxpayers who deposit tax into a registered tax pool can access a range of additional benefits that are not available when paying directly to Inland Revenue.

Depending on their circumstances, this may include:

  • Selling surplus tax and earning a better return than Inland Revenue credit interest.
  • Accessing refunds before filing a tax return.
  • Moving tax between provisional tax dates to create a more efficient payment profile.
  • Using tax deposits as security for affordable business funding.

These options help ensure taxpayers get the maximum value from their provisional tax deposits.

Frequently Asked Questions

A date stamp is the effective date attached to a tax deposit when it enters the tax pool. When tax is later transferred to a taxpayer's Inland Revenue account, Inland Revenue recognises the original date stamp rather than the transfer date, therefore treating it as if the taxpayer paid on time.

The date stamp is what makes tax pooling possible. Because Inland Revenue recognises the original deposit date, taxpayers can access a range of tax payment solutions that would not otherwise be available if the tax had been paid directly to Inland Revenue.

Tax pooling allows taxpayers to access a range of options that are not available when paying directly to Inland Revenue, including settling underpaid tax at a more cost-effective interest rate, aligning payments to business cash flow, selling surplus tax, accessing refunds and using deposits as security for business funding.

Yes, tax pooling allows date-stamped tax deposits to be transferred between taxpayers through an approved tax pooling provider such as Tax Traders. Inland Revenue recognises the original effective date of the deposit when the transfer is processed.

Tax deposits are held within a tax pooling account at Inland Revenue and administered by an approved tax pooling provider. Movements of funds are overseen by an independent trustee to help ensure taxpayer funds remain protected. Tax Traders uses Public Trust as its trustee.

Yes, tax pooling can be used to help resolve both overpayments and underpayments of tax. Taxpayers who have underpaid tax may be able to settle shortfalls at lower interest rates than Inland Revenue charges, while taxpayers who deposit into the tax pool and have overpaid tax may be able to sell surplus tax, access refunds or use their deposits as security for business funding.

Tax deposits held in the pool can be transferred at any time. In many cases, this occurs after a taxpayer's liability for the year has been confirmed, although the timing will depend on the taxpayer's circumstances.

No, Inland Revenue remains responsible for administering the tax system and collecting tax. Tax pooling operates within an Inland Revenue-approved legislative framework and helps taxpayers manage how their provisional tax is settled.