Interest rates are currently on the rise, driven in part by our high inflation locally (currently sitting at 7.2% annually for the September 2022 quarter) as well as wider global factors and market volatility.

This has, in turn, seen a rise in our cost of living (and the price paid for goods and services). As a corollary to rising costs and interest rates, it’s important you know how this will affect the options taxpayers have when it comes to paying their provisional tax.

As a result of the economic climate we currently face, we see a large number of clients wanting to keep cash in their business for longer (or utilise the cash they currently have for purposes other than provisional tax). This has seen an uptake in taxpayers exploring new and innovative ways to pay their tax and, as a result, we have seen a marked increase in clients utilising tax pooling in the last twelve months.

Using tax pooling is the best option for managing your clients’ income tax obligations. Our interest rates tend to be substantially lower than Inland Revenue’s use of money interest rates and late payment penalties.

Financing tax (by paying an upfront interest cost, and deferring settlement of the principal tax amount to a later date) has been a popular option for many of our clients in a rising interest rate market. As well as cash flow flexibility, other benefits to financing tax include having the certainty of tax funds at a certain date (and for a fixed price) as well as hedging an uncertain tax position (and further interest rate rises).

Clients can also purchase tax and settle both the interest and principal amounts in the future, should they not want to outlay any cash at the outset (or purchase tax after the fact, if there are any shortfalls). In addition, there are the Pay as You Go and Instalment Plan options, where clients can pay at a time that suits their cash flow best. If your client has the funds to pay their tax, depositing funds in our pool will provide maximum flexibility (funds can be withdrawn easily (subject to AML/CFT checks) or swapped around to other dates where there may be shortfalls).

The time of historically low interest rates may momentarily be over - mortgage, borrowing and savings rates are correspondingly increasing (as a result of a rising Official Cash Rate (OCR), in response to quelling inflation). With many economists picking an eventual OCR peak of over 5%, and interest rate (swap) markets pricing in this expectation, there may be some way to go yet for interest rate rises. Tax Traders will continue to offer competitive interest rates for taxpayers (in line with market rates) so taxpayers will still be up to 30% better off than late-paying Inland Revenue directly. We do this whilst providing cash flow flexibility for taxpayers and market-leading tools to make provisional tax a breeze.

Looking to use tax pooling for an upcoming provisional tax date? Log in here.

Need help?

The team is on hand to assist with any questions or queries you may have regarding tax pooling. Please phone us on 0800 829 872 or email team@taxtraders.co.nz and we will be happy to help.