Why Use Tax Pooling

Why Use Tax Pooling?

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Tax pooling helps New Zealand businesses manage one of the biggest challenges of the tax system: provisional tax.

By providing greater flexibility than paying directly to Inland Revenue, tax pooling can help reduce costs, improve cash flow and give taxpayers more control over how and when they make their payments.

This page summarises the main benefits of tax pooling.

Benefits of tax pooling

A more flexible way to manage provisional tax
Tax pooling helps taxpayers manage the uncertainty that comes with forecasting tax before the end of a financial year. Business conditions, profitability and cash flow can change throughout the year, making it difficult to accurately determine how much tax will ultimately be payable.

Tax pooling provides greater flexibility than paying directly to Inland Revenue, helping taxpayers reduce costs, improve cash flow and gain greater control over their provisional tax payments.

Whether tax has been underpaid or overpaid, tax pooling gives taxpayers more options to manage their position once their actual tax liability is known.
Reduce Inland Revenue interest and penalties
One of the most widely used benefits of tax pooling is the ability to settle underpaid tax at significantly lower interest rates than Inland Revenue's use-of-money interest rate and eliminate any late payment penalties.

Depending on the circumstances and legislative requirements, taxpayers may also be able to satisfy liabilities relating to other tax types following an Inland Revenue audit or voluntary disclosure.

For many taxpayers, this can result in substantial savings compared to paying Inland Revenue interest directly.
Improve cash flow flexibility
Cash flow rarely follows the same pattern as provisional tax dates.

Tax pooling can help taxpayers better align their tax payments with the reality of their business by allowing them to delay provisional tax payments, spread payments over time through instalment arrangements or structure payments in a way that better matches available cash flow.

This flexibility can be particularly valuable for growing businesses, seasonal businesses or taxpayers experiencing an unexpected change in trading conditions.
Get more value from overpaid tax
Tax pooling is not just for taxpayers who have underpaid their tax.

Taxpayers who have deposited tax into a registered tax pool may be able to sell surplus tax to someone who has underpaid, often achieving a better return than would otherwise be available through Inland Revenue's use-of-money interest regime.

Depending on their circumstances, taxpayers may also be able to access refunds before their tax return is filed, providing earlier access to funds that might otherwise remain locked at Inland Revenue.
Access additional funding options
Deposits held in a registered tax pool can also create opportunities that are not available when tax is paid directly to Inland Revenue.

Depending on the circumstances, taxpayers may be able to use those deposits as security for business funding, helping unlock working capital while retaining the benefits of their tax position.

Frequently asked questions

Tax pooling provides taxpayers with greater flexibility than paying directly to Inland Revenue. Depending on their circumstances, taxpayers may be able to reduce interest costs on underpaid tax, improve cash flow management, sell surplus tax, access refunds before filing a tax return or use tax deposits as security for business funding.

Yes, where tax has been underpaid, tax pooling can often reduce the interest costs associated with settling that liability compared to Inland Revenue's use-of-money interest rates and eliminate late payment penalties.

Yes, tax pooling can help businesses better align their tax payments with their cash flow by providing options such as delaying provisional tax payments, paying tax in instalments or accessing funding secured against tax deposits held in a registered tax pool.

While tax pooling is often associated with helping taxpayers settle underpaid tax, it can also provide benefits where tax has been overpaid. Depending on the circumstances, taxpayers may be able to sell surplus tax they have deposited into a registered tax pool, access refunds before filing a tax return or use deposited funds as security for business funding.

Tax pooling provides a practical way to manage the risk of getting those forecasts wrong by allowing taxpayers to adjust their position once their actual tax liability is known. This can provide greater certainty and peace of mind throughout the year while reducing the financial consequences of overestimating or underestimating tax.

Tax pooling can benefit a wide range of taxpayers, including sole traders, property investors, trusts, companies and large corporates. Any taxpayer who is required to manage provisional tax and faces uncertainty around their final tax position will benefit from the flexibility and optionality tax pooling provides.

No, tax pooling does not reduce the amount of provisional or terminal tax a taxpayer owes. It simply provides a more flexible framework for managing how and when that tax is paid to Inland Revenue.