Provisional tax finance
Provisional tax finance
Provisional tax finance is now available to our clients to help smooth tax payments. Provisional tax payments do not always occur at times of optimal cash flow in your business. Given that the first provisional tax payment of the year is due on 28 August so it’s very timely to highlight this option.
If the timing of provisional tax is inconvenient, or you simply do not have funds available, tax finance is a good option. Significant outgoings in your business may not match the inflow of cash. This is particularly common for importers and exporters. Consultants may have a lean patch for several months either side of the Christmas-New Year period and their income is ‘lumpy’.
Tax finance enables you to delay your tax payment until such time as cash is available to meet the liability. You are able to avoid penalties and interest from the IRD which is a great incentive. You can preserve your overdraft for purchases that will help drive business growth rather than devoting cash to a tax payment. No credit approvals are required for the finance and currently the rates are very attractive compared with commercial bank lending. The current rate as at August, 2015 is from only 5.75 per cent, only marginally higher than mortgage interest rates and almost certainly cheaper than other finance options. Banks are normally reluctant to lend for tax and so this product is a real help. The interest should also be deductible.
Finance is only available for income tax.
Tax finance is offered through Tax Management New Zealand (TMNZ), the same company that offers tax pooling. They have a helpful calculator on their website to help you work out the cost of finance and the repayment amounts. The calculator is available by clicking on the link here.
Tax finance is for future tax – when you move the date to pay a provisional tax payment that is coming due. Tax pooling (or a tax purchase) is when you buy tax for a date that has passed. In previous articles we have looked at tax pooling. This is an excellent option where you may have underestimated the amount of provisional tax that should have been paid. Tax pooling can help you avoid penalties and minimise interest. You can read more about that by clicking on the link here.
If you have any questions on provisional tax, or would like to meet with us to ensure that you are on track during the year, don’t hesitate to get in touch.