The important differences between deposits and purchased funds
Available balances in the tax pool can be split into purchased funds and deposited funds.
Deposits are much more flexible than purchased funds. Therefore, it is important to know the difference.
Deposit funds
Deposited funds or own funds are 'cash' deposits in the tax pool. They generally arise from a client paying cash directly into our tax pool account. However, they can also arise from:
- Proceeds from tax sales re-deposited in the pool
- Credit use of money interest returns applied to the pool.
Purchased funds
Purchased funds are usually the result of buying tax for a specific tax date that are still held in the pool - that is, they are yet to be transferred to Inland Revenue. But they also result from having:
- Residual purchased funds following transfers being completed, and
- Swap transactions.
Why is it important?
For any given tax year, a taxpayer has up to 75 days after their terminal tax date to transfer any purchased funds to Inland Revenue and retain their effective tax date. Purchased funds will lose their effective date if they are not transferred within 75 days of a taxpayer's terminal tax date.
This means that Inland Revenue will treat a transfer of those funds to that tax year as only paid on the date of the transfer, and any penalties and interest accrued will not be eliminated.
However, deposited funds can be transferred to Inland Revenue for a given tax year at any time and retain the original tax date of the deposit.
In addition, only deposited funds can be on-transferred to meet another liability of a different tax type. If you are wanting to use your tax pool funds for a tax type other than income tax, you must ensure they are deposited funds before proceeding, unless it is a reassessment.