If you have a reassessment resulting from an audit, notice of proposed adjustment, or voluntary disclosure, tax pooling can help reduce cost and risk.
How to purchase tax credits to meet Inland Revenue reassessments
Inland Revenue allows taxpayers to use a tax pool to address additional tax to pay due to audits, notice of proposed adjustments, and voluntary disclosures within certain criteria. Through Tax Traders, a taxpayer can purchase tax to meet any tax shortfall as a result of an IR reassessment – reducing the cost of debit use of money interest (UOMI) incurred if settled directly with IR.
How it works
Tax in the Tax Traders pool covers liabilities from the 2006 income year onwards and can be used for reassessments of the following tax types: GST / INC* / FBT / PAYE / RWT* / NRWT / ESCT / RSCT. To qualify as a reassessment, a return for that tax type and period must have previously been filed. Qualifying taxpayers will have 60 days from the notice of reassessment being issued to book and pay for a tax pool solution through Tax Traders.
*IR has the ability to consider reassessments here, even if a return has not previously been filed.
Tax Traders works with you to identify the best strategy to help minimise risk and exposure. Using existing deposits first is not always the most beneficial solution. We consider the optimal application of existing payments, taking into account:
- The timing of existing payments at IR vs the terminal tax date.
- The size of payments vs accrued interest.
- Any tax pool credits available to supplement existing payments.
Benefits
- Reduced interest cost compared to settling with IR directly.
- Can be a helpful cost-mitigation strategy as you work through the audit process.
Criteria
- With the exception of income tax and RWT, you must have previously filed a return for the tax type and period that is the subject of the reassessment, even it if was a nil return.
- If it is for income tax or RWT, IR has the ability to allow the use of tax pooling, even if no previous return has been filed. You should seek leave from IR early in the process. Tax Traders can assist with this – please contact a member of our team and we will be more than happy to help.
Sometimes it is beneficial to write into settlement deeds that use of tax pooling as part of the settlement is agreed by IR. Tax Traders can assist with drafting this language for you.
Related Questions
My client has received a notice of proposed adjustment from IR due to some income (sale of property under Brightline/overseas income) that was not previously declared. Can I use tax pooling to help reduce their costs?
If an initial assessment was not filed, the client does not technically meet the legislated criteria for re-assessment purchases. We generally recommend you seek discretion from IR before proceeding with a purchase.
You can outline the client's situation via email to the tax pooling team at IR in application for discretion and if following review they approve the use of tax pooling for your client, you are able to proceed with a purchase. If discretion is declined you will need to make arrangements with IR directly to settle the outstanding balance. To contact the tax pooling team at IR, reach out to taxpooling@ird.govt.nz