Backdated tax explained
Piggy banks! Remember those? Perhaps not, if you’re from generation-cashless. But the best way to understand buying back-dated tax (also called tax pooling) is to think of it as an enormous Piggy bank where Kiwi’s put their tax money, instead of paying it straight to the IRD. If you put too much tax into the piggy bank, you can sell it to someone who didn’t pay enough tax.
Swapping tax money like this is super smart because anyone putting tax into the piggy bank (tax pool) earns interest at a higher rate than the IRD pays. And those buying tax pay interest at lower rate than the IRD charges. Even better, those clever ones buying tax wipe out IRD penalties (and let’s face it, those penalties hurt like heck).
The Under-payer (buyer)
You’ll want to buy back-dated tax if you perhaps did something silly like estimating your provisional tax, without asking your Chartered Accountant first, and ended up earning more than you estimated. Or maybe you didn’t pay your provisional tax at all because your cashflow was funneled into the capital development of a capybara milk factory. When your tax return was assessed, you probably staggered unsteadily in shock when you saw your tax bill had tripled in size, with lashings of IRD penalties and interest.
If this sounds like you, don’t fret. This is where back-dated tax comes to your rescue. You’ll simply buy back-dated tax from the piggy bank to cover your missing tax. Your missing tax is then taken out of the piggy bank and sent to the IRD on the dates you should have paid it, so it looks like you never missed a tax bill at all. The penalties and IRD interest vanish and the IRD debt collectors back off. Brilliant huh?
There will be interest charged when you buy back-dated tax, but it’ll be lower than if you pay the IRD directly. The interest rate may even be lower than your overdraft and loan rates. Tax pooling interest is also tax deductible (yay).
The Over-payer (seller)
If you’re selling tax you’re likely to be one of those high earners who pays extra tax early because at your income level there’s increased exposure to IRD interest. Chances are your income is unpredictable and fluctuates madly. On down years, you’ll be required to pay more provisional tax than needed. Rather than let the IRD have that extra tax money on the cheap, you’ll pop it into the tax pooling piggy bank and earn interest at a higher rate than the IRD rate. Once your tax return is finalised, the exact amount of tax you need to pay is sent to the IRD from the piggy bank, squaring things up perfectly.
The Matchmaker (piggy banker)
Various firms run these piggy banks. Our preferred supplier is currently Tax Traders Limited. They’re an IRD-approved intermediary with tax pool funds held in Trust accounts by Public Trust. And to put your mind at rest, we don’t receive a commission or any kind of remuneration from them.
How to buy backdated tax:
Contact us the moment you have money ready to buy tax.
The sooner you buy backdated tax, the more you’ll save.
Keep in mind, the opportunity to buy backdated tax is only available until mid-June the following year (if you have an extension of time). You’ll need to buy 2026 tax before mid-June 2027, for example.
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