Key players in the tax pooling industry
The number of intermediaries has grown since tax pooling was first introduced. It is expected that further players will continue to enter the market.
Currently, there are six tax pooling intermediaries approved by the IR. They are:
- Tax Management New Zealand Ltd (TMNZ)
- Tax Pooling Solutions Ltd (TPS)
- Provisional Tax Finance Ltd (PTF)
- Electronic Tax Exchange Ltd (ETX)
- The New Zealand Tax Trading Company Ltd (NZTTC)
- Bailey Ingham.
Five of the intermediaries operate as companies and they appear to only provide tax pooling services. The majority of the intermediaries have executive team members that have had previous experience in tax or in banking and finance.
Transactions offered by the pooling intermediaries
The following table outlines the transactions provided by each intermediary:
* These intermediaries offer this service but do not separately market it. The transactions provided are briefly explained below.
Tax deposit, while marketed as a separate service by some of the intermediaries, is the key initial step that taxpayers must undertake if they wish to sell their excess tax payments, as only funds deposited with an intermediary may be sold.
In effect tax deposits are tax payments made into an intermediary’s tax pool account instead of to IR directly. The taxpayer can then request these funds to be transferred from the tax pooling account to their own IR accounts and sell any surplus funds through the tax pool.
The benefit of the deposit scheme is the flexibility the taxpayer has over their provisional tax obligations, and the access to more preferential interest rates as compared with UOMI. An additional benefit of depositing funds with an intermediary is that the taxpayer is able to request a refund of their overpayment at any time, compared to having to file a tax return before obtaining a refund of any overpaid tax from IR.
Tax Sale / Purchase
Tax sales and purchases were the key transaction types envisaged by IR when tax pooling was first introduced. That is, the ability for a taxpayer who has underpaid their tax for the year to purchase the tax from a taxpayer who has overpaid.
In summary, a purchase will occur when the taxpayer has underpaid their provisional tax liability as the taxpayer benefits through reducing the interest payable on the underpaid tax liability. Taxpayers may also purchase tax if they have underpaid other types of tax (including income tax, GST, FBT and PAYE) under certain circumstances.
A sale will occur when the taxpayer has overpaid their provisional tax liability as the taxpayer benefits by receiving a higher rate of interest on their overpayment compared to 1.75% offered by IR.
When a tax pooling intermediary finances a tax payment, it effectively allows a taxpayer to select a date (or period) after the provisional tax due date to pay their provisional tax instalment. The taxpayer pays a finance charge upfront and the intermediary makes a deposit equal to the amount financed into the tax pooling account. That deposit is funded from intermediaries own funds or via lines of credit established with other financiers for that purposes. On the agreed date the taxpayer pays the intermediary the final tax due and the intermediary transfers the tax deposit into the taxpayers IR account.
Where a taxpayer has overpaid at one provisional tax date and underpaid at another, the tax pool will allow them to swap the payments between provisional tax dates or with another taxpayer in order to even the payments out across the different dates. This enables the taxpayer to offset interest charges and either increase or reduce the amount of interest payable/receivable.
The ability to use tax swap depends on whether the taxpayer has been depositing their tax payments into a tax pooling account, and whether there is tax available at those dates. This is essentially a combination of a sale and a purchase.