Inland Revenue introduces extended timeline for tax pooling

Legislation was enacted at the end of March which introduced a pilot programme which substantially expanded the use of tax pooling.  This change was made as another lever that Inland Revenue is looking to use to help manage the significant and growing amount of tax debt in New Zealand. 

Tax pooling enables taxpayers to square up provisional tax shortfalls by purchasing tax through an intermediary, typically reducing use-of-money interest, eliminating late payment penalties, and improving cashflow outcomes. Taxpayers are able to make deposits into a tax pool rather than paying directly to Inland Revenue to ensure they have sufficient provisional tax payments in place, as well as swap, sell or buy deposits from certain dates to satisfy provisional tax obligations on the dates they are tied to. Most importantly, tax pooling provides a better option for taxpayers by generally being able to provide a better credit and debit interest rates compared to Inland Revenue’s use of money interest rates.

While tax pooling provides significant flexibility to taxpayers, it has historically been constrained by the requirement that transfers of funds from a tax pool must generally be made within 75 days of a taxpayer’s terminal tax date.

This timing constraint has been relaxed by the legislative changes enacted in March and applies for the 2022–23 and 2023–24 income years. Under new section RP 17BB, taxpayers have until 1 October 2026 to enter into a tax pooling arrangement for these income years, with settlement of those arrangements and transfers to Inland Revenue required to be made by 1 October 2027.  This provides a renewed opportunity for taxpayers to manage historic income tax positions related to those income years. The change forms part of a broader initiative to support the collection of tax debt and is a significant departure from the standard rules, and presents an opportunity for taxpayers to settle these debts for a reduced rate of interest and potentially eliminate late payment penalties.

It is important to note that this opportunity is only available for a limited time, with the taxpayer needing to enter into a tax pooling contract on or before 1 October 2026 and the tax is paid to Inland Revenue by 1 October 2027.  Further eligibility criteria also apply, including being up to date with filing obligations, having no overdue GST or PAYE liabilities, and not being subject to insolvency or recovery proceedings. 

Please reach out to PwC’s tax pooling specialists if you are interested in using tax pooling, and please visit Tax Pooling Solutions if you would like more information.