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One option taxpayers may wish to use to manage their provisional tax obligations, and reduce exposure to IRD interest, is tax pooling.

It is approved by Inland Revenue (IRD), with a registered intermediary such as Tax Management NZ operating under legislation set out in the Income Tax Act 2007 and Tax Administration Act 1994, and has been part of the New Zealand tax landscape since 2003.

Tax pool accounts are held at IRD and administered by an independent trustee. The independent trustee also oversees the bank accounts in which payments are made. At no stage does an intermediary have access to a taxpayer's payments.

Circumstances tax pooling can help If an upcoming provisional tax payment cannot be paid on the date it is due, a taxpayer can put in place an arrangement with a tax pooling intermediary to defer this payment to a time that suits them, without incurring IRD interest (currently 8.27 percent) and late payment penalties.

In the event provisional tax has been underpaid or not paid at all for the current tax year or one just completed, a taxpayer can purchase the backdated tax they require to eliminate IRD late payment penalties and reduce their exposure to interest by up to 30 percent.

The payment you make is effectively a purchase of tax previously paid to IRD on the original date it was due. As this tax is date-stamped, it is therefore treated as paid on time once IRD processes the transfer from a tax pool account to a taxpayer's own IRD account.

Income tax can be paid in one lump sum or in flexible monthly instalments that allow a taxpayer to pay what they can, when they can.

Taxpayers have up to 75 days past their terminal tax date to pay what they owe IRD through tax pooling.

Who might find tax pooling beneficial Provisional taxpayers who have cashflow constraints, have seasonal income or experience volatility due to fluctuating commodity prices or the exchange rate may find tax pooling a useful tool to manage their income tax payments and reduce compliance costs.

Speak with your accountant or visit www.tmnz.co.nz for more information.