Proactive tax management

In the current economic climate it appears that the main squeeze on expansion for New Zealand businesses is the ability to access additional funds.  Despite the improvement in the economic conditions, cash flow is still causing problems for many businesses.

There is no doubt that the lending conditions have permanently changed.  Finance is not as freely available as it once was.  We encourage our clients to consider proactive tax management.  There are three effective tools to proactively manage your tax obligations.

  • Tax pooling
  • Tax purchase
  • Tax factoring

Tax Pooling

Reduce exposure to use of money interest and penalties

Depositing your provisional tax payments into a tax pool can generate real advantages and a number of opportunities.

Estimating provisional tax throughout the year can be like crystal ball gazing.  It is not until your tax return has been prepared that you know whether those estimates are correct or not.  Get it wrong and you either pay a steep rate of interest (for underpayments) or miss out on a fair return (for overpayments) over that period.

Paying your income tax payments into a tax pool reduces that risk. When you know your actual tax position you can buy ‘historic’ tax if you have underpaid or you can sell any tax that you have overpaid.

Approved tax intermediaries have independent trusts that hold the deposits until they are instructed to release them to the IRD or refund them. 

If you buy historic tax you pay up to 30% less than you would have paid in IRD use of money interest.  If you sell tax overpayments you can earn up to twice the interest that you would have earned had the payment been made direct with IRD.

Benefits

  • Buy tax and reduce use of money interest and penalties charged on underpayments
  • Sell tax  and increase your return on overpayments
  • Refund balances within 2-3 working days without needing to file a return

Grant Thornton has strong relationships with all of the approved tax intermediaries and can negotiate the best deal for you.  Talk to your local Grant Thornton adviser to see how the use of tax pooling can benefit your business.

Tax Purchase

Reduce exposure to use of money interest and penalties

Have you missed a provisional tax date and are exposed to penalties?  Perhaps the year has been a better trading year than expected and you are facing a significant interest cost on your tax obligations.  How can this exposure be managed?

Through the services of IRD approved tax intermediaries it is possible to purchase ‘historic’ income tax which will reduce your exposure to interest and penalties.  In essence you are able to have the benefit of hindsight and retrospectively credit your IRD income tax account with historic tax purchases (as long as the purchase is made within 60 days of the terminal tax date).

Tax purchases:

  • save you money by reducing IRD interest charges and late payment penalties.
    • are at competitive finance charges, about 20% lower than IRD interest rates.
    • requires no financial information, no complicated application forms and no personal guarantees or security.
    • immediate approval in most cases.

If you are going through an IRD investigation and an error is found, you are able to use a tax purchase to reduce any interest that would otherwise arise on the underpaid tax.  This option is available for any tax type (as long as the purchase happens within 60 days of the new due date of the assessment).

Grant Thornton has strong relationships with all of the approved tax intermediaries and can negotiate the best deal for you.  Talk to your local Grant Thornton adviser to see how a tax purchase can benefit your business.

Tax Factoring

Provisional tax to pay…not sure where to get the money from?

Approved IRD Tax Intermediaries can help you out. 

We all have to pay tax, but inflexible payment dates don’t always take into account the cash flow cycles of a business.  Having to make tax payments can cause pressure on cash flow when money could be better invested in other things like stock or equipment.

Tax intermediaries provide an alternative way to finance your provisional tax payments – how?

  • Speak with your Grant Thornton adviser about the level of finance required,
  • Grant Thornton facilitates the arrangement with one of the tax intermediaries,
  • The interest on the arrangement is payable up front,
  • The intermediary deposits the arranged amount of tax into the ‘tax pool’ on the tax payment date with IRD (held in trust by an independent trustee),
  • You then settle the principal payment with the tax intermediary at a time when it suits your cashflow.

Benefits

  • Competitive rates
  • Reduce your overall finance costs
  • Free up working capital
  • Ease cashflow pressures
  • No security required
  • No credit checks
  • You can finance your tax obligations for up to 21 months.

Grant Thornton has strong relationships with all of the approved tax intermediaries and can negotiate the best deal for you.  If cashflow is a problem, talk to your local Grant Thornton adviser to see how you can finance your tax obligations the easy way.

Your next step

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