What Is Tax Pooling

What is tax pooling?

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Tax pooling is an Inland Revenue-approved way for New Zealand businesses to manage provisional tax more flexibly and cost-effectively.

This page explains what tax pooling is, how the mechanism works, who can use it, and what Inland Revenue's role is in the process.

The flexibility advantage

The real value of tax pooling for taxpayers

Instead of paying provisional tax directly to Inland Revenue, taxpayers can make deposits into a registered commercial tax pooling provider such as Tax Traders.

Those deposits are date-stamped when they are made and held within a tax pooling account at Inland Revenue.

But the real benefit of tax pooling is the flexibility it creates. The tax pooling framework provides taxpayers with a range of options that are not available when paying directly to Inland Revenue.

How does tax pooling work?

How tax pooling flexibility works in practice

More ways to use your tax deposits

For taxpayers who deposit tax into a registered tax pool, this may include selling surplus tax, accessing refunds before their tax return is filed, or using their deposits as security for business funding.

Align tax with cash flow

Tax pooling can align tax payments with a taxpayer's cash flow by allowing them to delay provisional tax payments, create instalment arrangements or settle underpaid tax at much more favourable interest rates compared to Inland Revenue's.

Tax paid when it matters most

Once a taxpayer's final income tax position is known, deposits can be transferred from the tax pool to Inland Revenue. These transfers are treated as though the tax was paid on time when the deposit was made.

Frequently asked questions

Yes, tax pooling is an Inland Revenue-approved legislative framework established under New Zealand tax law and has been operating since 2003. Tax Traders is a registered tax pooling provider with Inland Revenue. It is used by businesses of all sizes, from small businesses through to large corporates, to manage provisional tax obligations more effectively.

Tax pooling is governed by provisions within the Income Tax Act 2007 and the Tax Administration Act 1994. The primary legislative references include sections RP17 to RP21 of the Income Tax Act 2007 and sections 36BB, 120OD, 120OE, 124S and 124X of the Tax Administration Act 1994. Additional references relating to tax pooling and imputation credits can also be found in sections OB and OP of the Income Tax Act 2007.

Provisional tax requires taxpayers to forecast their income and tax liability before the end of the financial year. In practice, that can be difficult because business conditions, profitability and cash flow often change throughout the year. When those forecasts are wrong, taxpayers may end up either underpaying or overpaying their tax. The use-of-money interest regime compensates either Inland Revenue or the taxpayer for the use of those funds, but it does not remove the inherent difficulty of accurately forecasting tax in advance. Tax pooling was introduced to provide taxpayers with a practical way to manage this uncertainty. It allows overpayments and underpayments to be corrected once a taxpayer's actual tax position is known, while ensuring the correct amount of tax is ultimately paid to Inland Revenue.