Tax pooling not as popular as it should be

While its own tax pool fund has hit the landmark figure of $100m in deposits, professional services firm Crowe Horwath believes not enough middle New Zealand businesses are taking advantage of a service which has no downside to it but offers advantages including ready access to funds, tax cashflow smoothing, and reduced interest payments.

That’s according to Scott Mason, Tax Advisory Managing Partner.

He says organisations which are more susceptible to unexpected variations in income and performance – such as seasonality – those which handle cash, and industries targeted by IRD for review, such as construction and hospitality, can benefit most from tax pooling.

“This is a service which provides rapid access to money should circumstances change – and in an unpredictable world, circumstances can and do change rapidly. As always, cashflow is king. With tax pooling, you have ultimate flexibility around managing tax cash flows to match business needs, with reduced exposure to exorbitant IRD Use of Money Interest rates. There is nothing to lose and a fair bit to gain.”

Mason explains that participants in a tax pooling arrangement pay their provisional tax into a shared pool instead of directly against their Inland Revenue Department account. All tax pool funds are held at the IRD, and are 100% secure.

By way of example, when the exact amounts due to IRD are calculated, taxpayers have funds transferred from the pool to their IRD account. Any surplus is sold to other members of the pool who may need it to cover their obligations, generally creating greater returns than the Inland Revenue credit interest rate. Thus, on the one hand, it benefits those who have overpaid.

Members of the pool who have underpaid, or have tax reassessed during IRD audits, can buy the surpluses for less than the IRD Use of Money debit interest rate to settle their obligations. Thus, on the other hand, it benefits those who may find themselves in a cash flow crunch; transfers to IRD are settled immediately, eliminating any penalties or interest.

Acquisition of additional tax can be done in advance (finance) or after the provisional date (buy), and surplus tax can either be sold over time (sell) or refunded within a matter of days. The other key benefit is quick access to tax paid in changing circumstances. An example could be the recent earthquake where businesses were paying tax based on expected profits, and suddenly all that changed. Tax Pooling facilitates easy access to tax paid to date.

Mason notes that Crowe Horwath’s tax pool service is offered in partnership with Tax Management NZ (TMNZ), which is the country’s leading provider of tax pooling services. As its own fund operates within the broader pool, Crowe Horwath clients have preferential access to TMNZ funds if required.

He notes that tax pooling has always proven popular with larger companies, but says the message is yet to reach the mid-market and small to medium enterprise (SME) sector. “This is a valuable service which incurs no cost to our clients and on which we do not charge any fees. Participating in tax pooling therefore can only benefit those who join.”

For more information, please contact:

Scott Mason, Tax Advisory Managing Partner,
Crowe Horwath Australia/New Zealand
Email: scott.mason@crowehorwath.co.nz