Provisional tax pooling
2011 amendments to the provisional tax pooling rules include extending the time limit available to pay provisional or terminal tax to 75 days.
Sections RP 17, RP 17(2), RP 17B(3) & (4),RP 17B(4B), RP 17B(5) & (7) to (11), RP 19(3), RP 19B, RP (20) and DB 4B of the Income Tax Act 2007 and 157(10) of the Tax Administration Act 1994
A number of amendments have been made to the provisional tax pooling rules to ensure the legislation is simpler, fairer and is applied consistently across different tax types. A number of these changes either legislate operational concessions that previously applied to the tax pooling rules prior to amendments being made in 2009 or more correctly reflect the policy intent of the rules than they do currently.
Background
The tax pooling rules were introduced in April 2003 and allow compliant taxpayers to reduce their exposure to use-of-money interest on under-payments as a result of uncertainty about their provisional tax payments by purchasing funds from, or depositing funds with, a tax pooling intermediary.
Tax pooling generally involves a taxpayer depositing money with a tax pooling intermediary. The intermediary deposits that money in the intermediary's pooling account with Inland Revenue. The deposit earns interest. Tax payments deposited with an intermediary remain part of the tax pool until the taxpayer directs the intermediary to transfer the credit to the taxpayer's own account with the Commissioner. Alternatively, a taxpayer may sell their funds to another taxpayer, who is also a client of the same pooling intermediary. Or they may request a refund directly from the pooling intermediary.
Tax pooling allows provisional taxpayers to potentially access money at lower interest rates than if they failed to pay provisional tax on the due date and were subject to use-of-money interest. It also enables taxpayers who have overpaid their tax to get a higher return from selling the funds than they would receive from Inland Revenue.
A review of the legislation applying to tax pooling intermediaries was undertaken to ensure the rules were working as intended. As a result, a number of amendments were made to the tax pooling legislation in 2009, and some of Inland Revenue's administrative practices were also discontinued. However the amended tax pooling rules were perceived by some intermediaries and stakeholders as being less flexible than previously.
The amendments below aim to address this problem while still reflecting the original policy intent of the tax pooling rules.
Clarifications at the end of this item set out how the legislative changes affect the administration of the tax pooling rules. There are also clarifications on existing tax pooling policies and legislation.
Key features
The major changes to the tax pooling rules are:
- extending the time limit available to satisfy an obligation to pay provisional or terminal tax (a new 75-day time limit);
- the time limit for meeting provisional or terminal tax no longer applies to the use of own deposited funds, provided the return is filed on time;
- enabling taxpayers to use purchased funds in a tax pooling account towards the payment of a future provisional or terminal tax liability if certain criteria are met;
- allowing members in a group of companies to use pooling deposits made or purchased by any member of the same group in certain circumstances;
- extending the use of pooling funds to voluntary disclosures for certain non income tax revenues where there has been no previous assessment;
- correcting an omission that prevented tax pooling funds being used in cases where a return was filed but no assessment resulted, where the obligation quantified in the return was subsequently increased through an assessment;
- a discretion for the Commissioner to allow taxpayers to use tax pooling in certain cases of income tax or RWT voluntary disclosures where no return has previously been filed;
- removing the unintended ability to use tax pooling funds to eliminate imputation account debit closing balances;
- extending the definition of increased "amount of tax" to reflect the policy intent; and
- clarifying the effective date of tax pooling funds received when deduction notices are applied.
Application date
The changes apply from the date of Royal assent, being 29 August 2011.
Detailed analysis
New time limit to meet provisional or terminal tax liabilities
Previously all taxpayers were required to access funds in pooling accounts within 60 days of their terminal tax date in order to apply the pooling deposits against a provisional tax or an income tax liability effective at the date the deposit was originally made.
Changes have been made to section RP 17B(4) to provide more time for taxpayers who use funds in a pooling account - at back-dated effective credit dates - held by a tax pooling intermediary to meet their provisional or terminal tax liabilities.
The changes are being made because for some taxpayers the previous time limit of 60 days meant that the last day to use tax credits from a tax pooling account fell before the date when the tax returns are due to be filed, and potentially before tax liabilities have been determined by the taxpayer. This was an issue for some early balance dates (mostly December balance dates).
New subsection RP 17B(4)(a) provides that all taxpayers using a provisional tax pooling intermediary will have 75 days from their terminal tax date for the tax year to access funds held by a tax pooling intermediary to meet their provisional or terminal tax liabilities at backdated effective dates.
There are exceptions to this rule explained below.
New subsection RP 17B(4)(b) extends the time limit to 76 days from terminal tax date for persons with an October, November and December balance date, where the terminal tax date falls in a tax year that is a leap year.
Example 1 - early dates
Alex, a self-employed Wellington taxpayer, has an approved balance date of 31 October and has an extension of time until 31 March 2012 to file her 2011 income tax return. Alex's 2011 terminal tax date is 7 November 2011.
If Alex chooses to use tax pooling funds to pay any of her 2011 provisional or terminal tax obligations, her tax pooling intermediary will have until 21 January 2012 to request Inland Revenue to transfer tax pooling funds to her tax account with the Commissioner. Since 21 January 2012 is a Saturday, a tax pooling intermediary will have until Monday 23 January 2012 to make the transfer request for Alex.
Note: 23 January 2012 is also Wellington Anniversary day. However Alex's tax pooling intermediary will not get an extra day to make her transfer request, unless the tax pooling intermediary's business operation was based in Wellington (in which case the extra day will apply to all clients of that intermediary whose 75th day following their terminal tax date falls on 23 January 2012).
Example 2 - early balance dates
A Wellington company has an approved 31 December balance date and an extension of time until 31 March 2012 to file its 2011 income tax return. The company's 2011 terminal tax date is 15 January 2012. Because this day is a Sunday the company has until Monday 16 January 2012 to pay its terminal tax.
If the company chooses to use tax pooling funds to pay any of its 2011 provisional or terminal tax obligations, its tax pooling intermediary will have until 31 March 2012 (ie, 76 days) to request Inland Revenue to transfer tax pooling funds to the company's tax account with the Commissioner. This is because the company"s 2011 terminal tax date of 15 January 2012 falls in the 2012 tax year which is a leap year.
Since 31 March 2012 is a Saturday, a tax pooling intermediary will have until Monday 2 April 2012 to make the transfer request in respect of the company.
Note: The 75 days (76 days in a leap year) are counted from the day commencing after the terminal tax date, even if that day is not a working day.
Treatment of a taxpayer's deposits in a pooling account
Currently the time limit also applies to the use of a taxpayer's own deposited funds (the funds that a taxpayer deposits (as per section RP 18) into a pooling account themselves) as well as purchased funds1. New subsection RP 17B(4)(c) removes the time limit restriction where the amount that is to be transferred is a person's own deposited funds (under section RP 18) subject to a return being filed on time.
Therefore provided a person's return filing requirements have been met, there is no longer any time limit for transfer of these funds for meeting provisional and terminal tax liabilities. The return filing requirement applies only to the tax year for which the tax pooling funds are intended to be used.
This amendment means that people who use amounts that they have deposited will be able to transfer the total amount of their deposit as long as they do so within 75 days of their terminal date if they have not filed their tax return, or at any time if they have filed their return.
New subsections RP 17(2) and RP 17B(4)(4B) provide for the use of amounts deposited by a person to pay provisional tax, terminal tax, an increase in an assessment of tax or other obligations as if it had itself deposited the funds. This applies if the person is a member of a group of companies at the time an amount is deposited; so that each company of a group is able to use those deposited funds
The treatment of "own deposited funds" as provided for in new subsection RP 17B(4)(c) therefore extends to these group companies. This removes the time limit for the use of own funds where a person is a member of the same group of companies based on the membership of the group at the time of deposit or purchase, and use of the tax pooling funds - provided the return filing requirements have been met.
For imputation purposes if a member (company A) of a group of companies (which is not an imputation group) makes a deposit of own funds only company A receives an imputation credit at the time of the deposit. If company A uses any of these deposited funds to pay its own income tax or provisional tax obligations, no further imputation debits or credits arise as a result of the transfer of its own deposited funds from the tax pooling account to its income tax account.
However, if another member of the group (company B), who must have been a member of that group at the time the deposit was made by company A, uses the deposit to pay income tax or provisional tax, then an imputation credit will arise for company B when the deposit is transferred from the tax pooling account to company B's income tax account and an imputation debit will arise for company A. An imputation credit arises for company B on the effective date of the transfer and an imputation debit arises for Company A on the date the Commissioner processes the transfer request from the tax pooling account to company B's income tax account.
Company C, a member of the group, can use a deposit made by Company A to meet a non-income tax obligation (such as an increased GST obligation) by direct transfer of the deposit into their own GST account.
No imputation credit will arise for company C, but an imputation debit will still arise for company A on the date the Commissioner processes the transfer request from the tax pooling account to company C's GST account. Company C can only use the deposit if they are a member of the group at the time the deposit was made.
The treatment of imputation credits and debits for members of the same group is intended to be similar to the way the imputation rules apply if company A transferred its own deposited funds to its income tax account and then requested transfers under the transfer rules to other members of the group, or to meet company A's obligations to pay other non income tax obligations.
The amendment also ensures that funds paid directly to a tax pool are treated similarly to those paid directly to the Commissioner. Once transferred from the tax pool to the taxpayer's tax account section 173L and 173M of the Tax Administration Act allows excess tax to be transferred within the taxpayer's account or to related parties at the date the tax was paid. There is no time limit on such transfers. There are no changes to transfers of "own funds" back into a tax pooling account (ie, the effective date of all such transfers will continue to be the date of request).
New subsection RP 17B(7) limits the amount a taxpayer may request an intermediary to transfer:
- Section RP 17B(7)(a) applies to purchased funds and limits these to the actual obligation owing (subject to section RP 19B, explained below).
- Section RP 17B(7)(b) ensures no limit applies to a taxpayer using their own deposited funds if they have complied with their return filing obligations for the applicable tax year.
- Section RP 17B(7)(c) and (d) limit the amount of all tax pooling transfers (whether own funds or purchased funds) to the increased amount of tax payable or the amount of deferred tax payable, as applicable.
In practice, the requirement to file a tax return in order for a taxpayer to access their own deposited funds will not necessarily prevent the taxpayer from using these funds if the return for the applicable tax year is not filed.
The purpose of the return filing requirement is, firstly, to ensure that taxpayers who use their own deposited funds comply with their other tax obligations and, secondly, to consider, on a case by case basis, if a request complies with other legislative provisions. Where taxpayer's use of their own deposited funds is found to be done in a manner that contravenes other legislative provisions and this becomes possible solely because they have not filed their tax return, the Commissioner may not allow the funds to be transferred, or if already processed will amend or reverse the transfer.
Example 3 - use of "own deposited funds"
Rokky Ltd has a 31 March balance date and did not file its 2011 income tax return by 7 July 2011 (the company does not have a tax agent or an individual extension of time). The company's 2011 terminal tax date is 7 February 2012.
If the company chooses to use its own deposit tax pooling funds to pay any of its 2011 provisional or terminal tax obligations, its tax pooling intermediary will have until 22 April 2012 to request Inland Revenue to transfer tax pooling funds to its tax account with the Commissioner. Since 22 April 2012 is a Sunday, a tax pooling intermediary will have until Monday 23 April 2012 to make the transfer request in respect of the company.
The company fails to ask its tax pooling intermediary to transfer its own deposited funds by 23 April 2012. On 24 April 2012 the company asks its tax pooling intermediary to transfer its own deposited funds with backdated effective dates towards its 2012 provisional tax obligations.
The company then requests the Commissioner (under the Transfer Rules in Part XB of the TAA) to transfer the funds from the company's 2012 tax year to its 2011 tax year retaining the backdated effective dates.
Example 4 - use of purchased funds
Julia paid $63,000 of 2011 provisional tax in three instalments. By 31 March 2011 Julia thought she might owe some terminal tax so she then purchased $9,000 of tax pooling funds (one third at each of her 2011 provisional tax instalment dates of 28 August 2010, 15 January and 7 May 2011) to mitigate the use-of-money interest otherwise payable.
Julia files her 2011 income tax return on 7 July 2011 showing terminal tax to pay of $6,000 due by 7 February 2012. Julia asks her tax pooling intermediary to request transfer of her $9,000 to her 2011 tax account at the backdated effective dates she purchased these funds. The tax pooling intermediary makes the transfer request on 17 February 2012
The Commissioner will only allow Julia to receive a total of $6,000 at backdated effective dates into her 2011 tax account as that is the amount she owes for the 2011 tax year.
The remaining $3,000 (ie, $1,000 purchased at each of 28 August 2010, 15 January and 7 May 2011), if transferred into her 2011 income tax account, will have the effective dates changed to the date of request (ie, 17 February 2011).
Alternatively Julia could ask her tax pooling intermediary to transfer the $3,000 towards her 2012 provisional tax obligations and/or any expected terminal tax obligations. The effective dates Julia can use must be no earlier than the effective date the funds are available at and must not be any earlier than the first day of her 2012 tax year (ie, 1 April 2011).
Example 5a - "own deposited funds" used to meet an increased amount
Wendy has a 31 March balance date and deposited $30,000 into a tax pooling account on each of her 2011 provisional tax instalment dates to meet her provisional tax obligations of $90,000. Wendy's RIT turns out to be $87,000. On 30 April 2012 Wendy asks her tax pooling intermediary to transfer $29,000 of the $30,000 she deposited at each instalment date to meet her 2011 tax obligation of $87,000.
Wendy keeps the remaining deposits in the tax pool ($1,000 at each of 28 August 2010, 15 January and 7 May 2011).
On 24 April 2012 a GST audit revealed that Wendy has made an error in calculating the GST payable for the two month period ended 31 March 2011. Wendy is issued with an assessment for an additional $2,000 in GST due to the error.
Because Wendy's 31 March 2011 GST was due on 28 April 2011, she can use the remaining 28 August 2010 and 15 January 2011 deposits to pay her increased GST obligations and mitigate use-of-money interest that would otherwise be payable.
Example 5b - "own deposited funds" used to meet other obligations
Continuing with example 5a, Wendy made an adding error and short-paid her PAYE by $1,500 for the period ended 30 April 2012, which was due on 20 May 2012. Wendy realises her error when she receives her PAYE statement of account on 30 May 2012.
Because Wendy still has $1,000 of her own deposited funds in a tax pooling account with an effective date of 7 May 2012, she can ask her tax pooling intermediary to transfer this $1,000 to her 30 April 2012 PAYE period with an effective date of 20 May 2012.
Because Wendy has no other own deposited tax pooling funds she still owes the remaining $500 PAYE as well as late payment penalties and use-of-money interest on this amount.
Example 6 - group companies (own deposited funds and purchased funds)
Example 6a
Orange Ltd is the nominated member of a group of companies for making tax pooling deposits and purchasing tax pooling funds. Orange Ltd makes three deposits of $100,000 on 16 June 2010, 27 April 2011 and 31 August 2011 and on 22 June 2011 also purchased $200,000 from another member of the same tax pool it is a member of. When these deposits and the purchase were made the members of the group were Orange Ltd, Blue Ltd and Grey Ltd.
At the time of deposit only Orange Ltd received imputation credits.
Any of these members of the group can use any of the three tax pooling deposits as their own deposited funds. The funds purchased on 22 June 2011 are not "own deposited funds" for any of the companies.
Note: The exact imputation impacts for members of a group of companies will differ for "own deposited funds" and purchased funds, where these are applied to income tax accounts of the members. Additionally there will also be imputation impacts where "own deposited funds" and purchased funds are applied to meet other taxes. These impacts are explained in other parts of this item.
Example 6b
On 1 June 2011 Purple Ltd joined the Orange Ltd group of companies. Because Purple Ltd was not a member at the time the 16 June 2010 and 27 April 2011 deposits were made, it cannot use these funds as "own deposited funds". If Purple Ltd uses any of these two deposits they would be purchased funds (ie, acquired in some way from the Orange Ltd group).
The deposit made on 31 August 2011 is considered to be "own deposited funds" as Purple Ltd was a member of the group as at that date. The funds purchased on 22 June 2011 are not "own deposited funds" for Purple Ltd either.
There are no imputation impacts on any of the companies as a result of Purple Ltd joining the group.
Note: Group companies and tax pooling intermediaries are responsible between themselves for ensuring that full details of group membership of companies are maintained each time a deposit is made by a group member and each time when such funds are used as "own deposited funds".
Example 6c
Purple Ltd has its own tax pooling deposit of $50,000 it made on 22 October 2009. When Purple Ltd joined the Orange Ltd group this deposit had not been used and remains Purple Ltd's "own deposited funds".
However if Orange Ltd, Blue Ltd or Grey Ltd use any of the $50,000 deposit made by Purple Ltd they cannot use this as "own deposited funds".
Note: Companies joining or leaving a group and tax pooling intermediaries are also responsible between themselves for ensuring that full details of unused deposits the company made before joining a group are maintained as well as any use of those "own deposited funds" while they are a member of a group of companies.
Example 6d
On 30 September 2011 Grey Ltd leaves the Orange Ltd group. Grey Ltd retains the $100,000 deposited into the tax pool on 27 April 2011. Because Grey Ltd was a member of the Orange Ltd group when that deposit was made this becomes Grey Ltd's "own deposited funds".
From that time the $100,000 deposit made on 27 April 2011 is no longer a deposit of the Orange Ltd group.
On 30 September 2011 Grey Ltd would receive an imputation credit of $100,000 as at 27 April 2011 and Orange Ltd will receive an imputation debit as at 30 September 2011.
If Grey Ltd were to rejoin the Orange Ltd group at some point in future, this $100,000 deposit would only be "own deposited funds" for Grey Ltd. Orange Ltd and Blue Ltd cannot use this deposit as "own deposited funds" again. There would be no imputation impacts if Grey Ltd rejoined the group at the time of rejoining.
Note: If it was Purple Ltd that left the group, it could never have used the 27 April 2011 deposit as "own deposited funds" and therefore the $100,000 would be treated as purchased funds of Purple Ltd upon leaving the group. Orange Ltd will receive an imputation debit of $100,000 on 30 September 2011 (but the date the debit arises in its imputation account and in which imputation year(s) will depend on its 2011 imputation account closing balance and on its 2012 imputation account balance on 30 September 2011).
An imputation credit for Purple Ltd will only arise on the date the Commissioner transfers the $100,000 to its income tax account. The effective date of Purple Ltd's imputation credit will be the same effective date it uses the $100,000 at.
Example 6e
On 1 November 2011 Pink Ltd joined the Orange Ltd group. Because Pink Ltd was not a member at the time the 16 June 2010 and 31 August 2011 deposits were made, it cannot use these funds as "own deposited funds". Also Purple Ltd's deposit of 22 October 2009 cannot be used by Pink Ltd as "own deposited funds".
Pink Ltd has also made a deposit of its own of $100,000 on 14 January 2011 and retains this as "own deposited funds" when it joins the Orange Ltd group. Orange Ltd, Blue Ltd and Purple Ltd cannot use this deposit as "own deposited funds".
There are no imputation impacts on any of the companies as a result of Pink Ltd joining the group.
Example 6f
On 31 May 2012 Pink Ltd leaves the Orange Ltd group. Prior to leaving, Pink Ltd and Orange Ltd come to an arrangement to swap Pink Ltd's deposit of 14 January 2011 for $50,000 of the $100,000 deposit Orange Ltd's group made on 16 June 2010.
Both Pink Ltd and Orange Ltd group are deemed to have disposed of (ie, sold) their respective "own deposited funds" and acquired the other's $50,000. Pink Ltd now has purchased funds of $50,000 with an effective date of 16 June 2010 and Orange Ltd Group now has purchased funds of $50,000 with an effective date of 14 January 2011 and a remaining $50,000 of its "own deposited funds" with an effective date of 16 June 2010.
Note: Both Orange Ltd and Pink Ltd will receive an imputation debit of $50,000 on 31 May 2012. The dates these debits will arise in each of these companies imputation accounts and in which imputation years will depend on their respective 2012 imputation account closing balances and on their respective 2013 imputation account balances as at 31 May 2012.
Imputation credits for both Orange Ltd and Pink Ltd will only arise on the date the Commissioner transfers the $50,000 to their respective income tax accounts. The effective date of each company's imputation credit will be the same effective date it uses the $50,000 at (which is likely to be different for each company as the deposit dates are different).
Example 7 - imputation effects of use of "own deposited funds" for members of a group of companies
Example 7a
Ship Ltd, Boat Ltd and Dinghy Ltd are members of a group of companies. On 28 October 2011 Ship Ltd makes a deposit of $500,000 into a tax pooling account and an imputation credit of $500,000 arises on the same date.
On 26 April 2012 the Commissioner processes a transfer request from the group's tax pooling intermediary to transfer $200,000 of the $500,000 deposit to Boat Ltd's 2012 income tax account with an effective date of 28 October 2011.
An imputation credit of $200,000 arises for Boat Ltd on 28 October 2011. For Ship Ltd an imputation debit of $200,000 arises on 26 April 2012.
Example 7b
Dinghy Ltd has an increased GST obligation of $30,000 for its GST period ended 30 September 2011 following an amended assessment issued by the Commissioner on 13 June 2012.
On 27 June 2012 the Commissioner processes a transfer request from the group's tax pooling intermediary to transfer $30,000 of the remaining (ie, $300,000) deposit Ship Ltd made on 28 October 2011 to Dinghy Ltd's GST account, also with an effective date of 28 October 2011.
No imputation credit arises for Dinghy Ltd as the transfer is from the tax pooling account to its GST account. For Ship Ltd an imputation debit of $30,000 arises on 27 June 2012.
Note: If instead, Ship Ltd had the increased GST obligation, an imputation debit of $30,000 would still arise for Ship Ltd on 27 June 2012.
Transfers for certain expected tax liabilities
Currently taxpayers who purchase pooling funds and who filed their income tax return at the time Inland Revenue processes the transfer request are only able to transfer funds for actual tax obligations. There may be situations when taxpayers wish to purchase pooling funds and have them transferred to their income tax account before they file their income tax return (because they have an expected obligation that cannot be quantified at that time). New section RP 19B allows taxpayers to use purchased funds in a tax pooling account towards the payment of a future tax liability if certain criteria are met.
The section applies to a person who:
- expects to have an income tax or provisional tax liability for a tax year;
- has acquired funds in a tax pool (there are no limitations in relation to taxpayers using their own deposited funds); and
- has not yet filed a return of income in relation to the liability for the year (and therefore cannot quantify the actual obligation).
In order to use purchased funds for future tax liabilities according to this section, certain requirements must be met. Section RP 19B(3) provides that at the time of making the request the person must have met all of their return filing requirements for earlier tax years (for an income tax liability) and have met all their obligations under the provisional tax rules (for a provisional tax liability). This ensures that the Commissioner has all of the necessary information when a request for purchased pooling funds is received to determine what the taxpayer's provisional tax obligations are as these are generally based on prior year terminal tax obligations from tax returns.
Section RP 19B(4) provides that any backdated credit date for purchased funds is limited to the tax year in which the funds are used. This ensures that backdated tax pooling funds are not able to be used to meet other obligations that the tax pooling rules are not intended to apply to. Taxpayers will be able to choose any date within their tax year (or income year in the case of non-standard balance date taxpayers) to transfer tax pooling funds at. If no purchased funds are available at the dates required, funds with later effective dates can be used.
Section RP 19B(5) ensures that if excess tax results from the purchased pooling funds this can only be:
- transferred to a future tax year of the taxpayer to meet an obligation to pay their provisional or terminal tax; or
- transferred to another tax obligation of the taxpayer or another taxpayer with an effective date no earlier than the date the taxpayer requests a transfer of the excess tax (that is, no backdated effective date is possible); or
- refunded to the taxpayer.
Examples 8 & 9 - purchased funds to meet expected liability
Example 8a
Phil has a 31 December balance date and all his income tax returns are up to date. Phil has paid his 2011 provisional tax of $60,000 in three payments of $20,000 at each of the due dates (28 May 2010, 28 September 2010 and 28 January 2011).
Phil has an extension of time to 31 March 2012 to file his 2011 income tax return but an analysis of his financial data in March 2011 indicates Phil's 2011 RIT is likely to be $75,000.
Phil decides to purchase $5,000 at each of his 2011 provisional tax instalment dates and asks his tax pooling intermediary to transfer these amounts in April 2011. Phil's tax agent files Phil's 2011 tax return on 31 March 2012 showing RIT of $70,000.
Because Phil paid $60,000 and also purchased $15,000 of tax pooling funds towards an expected liability of $75,000, the first $15,000 of any excess tax in his 2011 income tax account would be subject to section RP 19B(5) if his RIT turned out to be less $75,000. Since Phil's RIT was $70,000 he has $5,000 excess tax he must now choose how to deal with.
On 30 April 2012 Phil asks the Commissioner to transfer $1,000 of the excess tax to his Child Support for the month of April 2012 due on 20 May 2012 and requests a refund of the balance of $4,000. The Commissioner transfers the $1,000 to Phil's Child Support on 7 May 2012 with an effective date of 30 April 2012 (or a later date that Phil chooses) and refunds the $4,000 together with the use-of-money interest accrued to 7 May 2012.
Note 1: The reason the Commissioner will allow Phil to transfer the purchased tax pooling funds that have become excess tax to meet his Child Support obligations is because the transfer is not being backdated and if the $1,000 was refunded along with the other $4,000 Phil will need to make a payment of $1,000 on or before 20 May 2012 to meet his Child Support obligations on time.
Note 2: If Phil also owed $1,000 Child Support for the month of March 2012, which was due on 20 April 2012, and had also requested a transfer on 30 April 2012, the earliest effective date Phil could choose for the transfer would be the date of request (ie, 30 April 2012). In this case Phil could request a transfer of the $1,000 and the late payment penalty of $100 to be transferred on 30 April 2012 to clear this Child Support debt for that month because there is no backdating of tax pooling funds.
Example 8b
Using the facts from example 8a except that Phil's RIT was $55,000 when his tax agent filed his 2011 tax return.
Phil purchased $15,000 which was not needed to meet his RIT and he also has $5,000 of excess tax from the provisional tax payments he made.
The first $15,000 of transfers will be subject to section RP 19B(5). If Phil wishes to transfer any of the $5,000 of overpaid provisional tax, he will firstly need to advise the Commissioner what he wants to do with the $15,000 of excess tax resulting from the tax pooling purchase. Until the $15,000 of purchased tax pooling funds is dealt with pursuant to section RP 19B(5) the Commissioner will not process any transfer request in respect of the $5,000 of overpaid provisional tax.
Example 8c
Using the facts from example 8a except that Phil's RIT was $55,000 when his tax agent filed his 2011 tax return and Phil purchased tax pooling funds to meet his 2011 provisional tax obligations of $20,000 on each provisional tax due date.
Phil purchased $15,000 which was not needed to meet his RIT in addition to $5,000 of the $60,000 provisional tax payments he purchased.
Section RP 19B(5) will apply to all $20,000 of the purchased tax pooling funds that became excess tax when Phil's tax return was filed and his RIT and terminal tax was determined.
If Phil wishes to transfer any of the $20,000 of purchased tax pooling funds that have become excess tax, he will need to advise the Commissioner which option(s) under section RP 19B(5) he wishes to apply to the $20,000.
Example 9
Kath estimates her 2012 provisional tax on 26 August 2011 at $54,000 and purchases $18,000 of tax pooling funds to pay her first instalment due on 28 August 2011. Kath's tax pooling intermediary requests the Commissioner to transfer the $18,000 to Kath's 2012 income tax account. On 23 November 2011 Kath determines that her 2012 RIT will be much lower than her estimate and she files a revised estimate of $45,000.
Because Kath's second instalment is not due to be paid until 15 January 2012 she has excess tax of $3,000 (from the $18,000 tax pooling funds transferred to her account). On 13 December 2011 Kath asks the Commissioner to transfer the $3,000 excess tax to her husband's 2012 income tax account. The effective date of this transfer will be 13 December 2011 because the excess tax arose from purchased tax pooling funds she is transferring to another taxpayer (the concessions for transfers between associated persons under the transfer rules do not apply to transfers that are subject to section RP 19B). For Kath to retain the 28 August 2011 effective date she would have to be applying the excess tax pooling funds to her own income tax (the 2013 tax year but not an effective date earlier than the first day of that tax year, ie, 1 April 2012), an increased amount of tax she owes, or an obligation she has to pay deferred tax (in both these last two cases the original due dates of the tax must fall on or after 28 August 2011).
Extending the use of pooling funds to voluntary disclosures where there has been no previous assessment
In the past, tax pooling funds were limited to situations when there has been a previous assessment. In addition, the use of tax pooling funds did not extend to situations where a tax liability existed without the need for an assessment (because the amount due is an obligation, not assessed taxes such as for resident withholding tax and fringe benefit tax).
New section RP 17B(3)(ab) will allow pooling funds to be used to pay increased amounts arising from a voluntary disclosure when there has not been a previous assessment (because the amount due was an obligation, not assessed taxes), provided the relevant return has previously been filed for that return period.
Since not all adjustments will arise from a voluntary disclosure, new section RP 17B(3)(ac) will allow pooling funds to be used when the Commissioner makes an assessment or adjustment increasing an amount previously payable (because the amount due was an obligation, not assessed taxes), provided the relevant return has previously been filed for that year or return period.
The original amount of tax payable cannot be paid using tax pooling funds. Tax pooling funds can only be used for the adjustment resulting from the difference between the return filed and the increased amount owing. This is consistent with the treatment of additional amounts owing resulting from amended assessments. If second or subsequent adjustments are made that result in more tax to pay, this amendment will also allow tax pooling to be used, provided each subsequent adjustment results in an increased amount of tax to pay than the immediately preceding adjustment.
The timeframe for taxpayer's using tax pooling at backdated effective dates to meet increased amounts of tax remains at 60 days from the date the Commissioner issues an assessment, or other form of written notice where the increased amount of tax does not result from an assessment (for example a letter setting out the adjustments or a statement of account).
Example 10 - PAYE voluntary disclosure is made (return has previously been filed)
The Corner Company employs 5 staff and has 3 contractors and files its own PAYE schedules. For the month of August 2011 it had a payroll software problem that resulted in incorrect information being generated and the PAYE paid was $4,000 instead of $4,500. The company did not become aware of the problem until it was preparing its September 2011 PAYE schedule.
The company makes a voluntary disclosure to correct the error and once the Commissioner has made the adjustment the company sources tax pooling funds within 60 days of the date the Commissioner notifies the company of the adjustment to pay the increased amount of PAYE of $500 with an effective date equal to the original due date to mitigate the use-of-money interest that would otherwise be payable (even though a new due date was set to pay the $500).
Shortly after the Commissioner is approached by one of the company's contractors who considers that he should be an employee. Following a review of all of the contracts and other relevant documents, a meeting is held with the company and the contractor where agreement is reached that the contractor was in fact an employee and that PAYE of $400 should have been deducted for the month of August 2011.
The Commissioner makes a further adjustment increasing the PAYE for the month of August 2011 from $4,500 to $4,900. The Commissioner sets a new due date for the increased amount of tax of $400 and the company is able to use tax pooling funds within 60 days of the notification of the increase of $400 in the PAYE (which may be by way of a Notice of Assessment, a letter setting out the Commissioner's adjustment, or a Statement of Account showing the increased PAYE if the adjustment made does not result in an assessment).
Example 11 - FBT voluntary disclosure is made (return has previously been filed)
In December 2011 the Commissioner investigates Rentals 4 You Ltd, a company that hires out cars for special events. The Commissioner finds that the company did not include FBT on a limousine that was used privately by some of the employees of the company in its quarterly FBT returns filed covering the quarterly FBT periods between 1 July 2010 and 30 June 2011. Following the investigation assessments are made by the Commissioner increasing the FBT obligations of the company by $500 per quarter.
The company has 60 days from the date of the Notices of Assessment for each quarter to use tax pooling funds to meet the increased FBT payable. The company has $500 of its own funds in the tax pooling account that was left over from a deposit made on 7 May 2010 to pay its 2010 income tax that was not needed.
The company uses the $500 of its own funds to pay the increased FBT for the quarter ended 30 September 2010 as at the original due date of 20 October 2010 to mitigate the use-of-money interest that is otherwise payable.
The company also purchases $1,500 of tax pooling funds to pay the additional FBT of $500 due for each of the three quarters ended on 31 December 2010, 31 March 2011 and 30 June 2011 at the due dates these FBT returns were originally due (ie, 20 January 2011, 31 May 2011 and 20 July 2011, respectively).
A Commissioner discretion to use funds where no return is filed
New section RP 17B(9) stipulates that the Commissioner's discretion in new section RP 17B(10) is available in situations where a voluntary disclosure is made and a return has not previously been filed (ie, the return is provided at the time of making the voluntary disclosure). This discretion is limited to income tax and resident withholding tax (RWT).
New section RP 17B(10) provides the matters that the Commissioner will have regard to in considering whether or not to allow the use of tax pooling funds. This includes consideration of the compliance history over the previous two years (filing and paying) and other factual information available to the Commissioner at the time. That other factual information available must satisfy the Commissioner that the increased amount of tax has arisen as a result of an event or circumstance beyond the person's control and the person has a reasonable justification or excuse for not filing the return by the due date (for example, the person cannot reasonably have been expected to have known of their obligations) This ensures that in exercising discretion the Commissioner is satisfied that each occasion of non-compliance is not a deliberate act or a continuation of failures because of the taxpayer's inadequate or poorly applied internal controls.
The taxpayer is required to have the ability to use tax pooling funds confirmed to them in writing before backdated tax pooling funds are used under this provision. It is therefore advisable that taxpayers ask the Commissioner to exercise his discretion at the same time as making their voluntary disclosure of income tax or RWT and before committing themselves to acquiring tax pooling funds at backdated effective dates.
Requests to use this discretion need to be sent to The Manager, Legal and Technical Services, PO Box 1462, Wellington.
Examples 12 & 13 - voluntary disclosure is made (return is filed at same time)
Example 12
John immigrated to New Zealand 5 years ago to retire and sought the advice of a professional advisor to ensure that his New Zealand tax obligations would be met. John had extensive foreign investments but was incorrectly advised that because these were being taxed in the countries in which they were held in, he was not required to file New Zealand tax returns and return the income.
John considered himself to be a "non-filing taxpayer" as he had no other income. By chance John discovered that the advice he had received may have been incorrect. John engaged a tax agent who confirmed that the earlier advice had been wrong and he has always been a "filing taxpayer" and should have filed IR 3 returns for all of the tax years he has been resident in New Zealand declaring all his overseas income (and claim any overseas tax paid).
The tax agent makes a voluntary disclosure and files the last 5 years of returns for John together with an application under section RP 17B(10) of the Income Tax Act 2007 as he may qualify for being allowed to use backdated tax pooling funds to mitigate the use-of-money interest that will otherwise apply.
The Commissioner accepts the voluntary disclosure and after making suitable enquiries also accepts that John had done what any other reasonable person in similar circumstances could be expected to do. The Commissioner was satisfied from his enquiries that John could not have been expected to have known or suspect the advice he had been given was incorrect until his suspicions were aroused.
The Commissioner accepts that the increased amount of tax to pay (after allowing for overseas tax credits) was due to an event or circumstance that was beyond John's control because he should have been able to rely on a professional advisor to have given him correct advice. The Commissioner also took into consideration that John had a reasonable excuse for not filing his tax returns by their due dates and that he took immediate steps as soon as practicable after he discovered that he had failed to file his returns to make a voluntary disclosure and file them.
Because John had no other tax obligations to fulfil there was no other compliance history for the Commissioner to take into account and the absence of a compliance history will not count against John.
The Commissioner is able to issue John with a letter that he can provide to a tax pooling intermediary confirming that John may use backdated tax pooling funds to meet the income tax obligations arising for each of the previous 5 tax years as a result of his voluntary disclosure.
Note 1: John will be able to purchase tax pooling funds at effective dates that fall within each tax year to the extent of the tax owing in each year. If no tax pooling funds are available at an appropriate backdated effective date he will be able to purchase funds that have later effective dates. If John cannot source enough funds at backdated effective dates to mitigate all of the use-of-money interest, he will not be able to purchase backdated tax pooling funds to pay any use-of-money interest.
Note 2: John will need to arrange to purchase tax pooling funds and ensure his tax pooling intermediary requests the transfer within 60 days of the date the Commissioner confirms in writing that John's self assessments have been accepted (or if the Commissioner issues an assessment within 60 days of the date of the notice of assessment).
Example 13
Mary became a self-employed builder 3 years ago but did not file tax returns or GST returns. In Mary's first year of business she received $40,000 gross. In Mary's second year of business she received $100,000 gross. This level of income continued into the third year. In Mary's fourth year of business she was offered a big building contract. Mary realises that now she will need to issue GST invoices so she needs to sort out her tax affairs.
Mary engages a tax agent who subsequently makes a voluntary disclosure and files the last 3 years of income tax and two years of GST returns for Mary. He thinks Mary may qualify to use backdated tax pooling funds to mitigate the use-of-money interest that would apply for unpaid income tax The agent also makes an application under section RP 17B(10) of the Income Tax Act 2007. The tax agent advised Mary that applications can't be made in respect of GST.
The Commissioner accepts the voluntary disclosure, accepts that Mary was not liable to be registered for GST until the commencement of her second year of business and investigates Mary's compliance history. The Commissioner determines that Mary knew when she became self-employed that she was required to file income tax returns, declaring her building income and that she could claim business related expenses, and was required to keep adequate records of both.
The Commissioner also determines that Mary was fully aware of GST and that she also knew that she should have registered from her second year in business as she had exceeded the GST registration threshold due to the large amount of taxable supplies she was making.
Mary could not provide adequate reasons for failing to file income tax and GST returns or for not engaging a tax agent to do her returns for her, other than she was always busy with work.
The Commissioner determines that the increased amount of tax arising from the tax position Mary took by not filing her income tax returns when they were due was not as a result of an event or circumstance beyond her control.
Mary did not have any reasonable justification or excuse for not filing her income tax returns by their respective due dates.
The Commissioner also takes into account that Mary should have registered for GST 2 years ago, but failed to do so and did not file her GST returns or pay any GST owing.
The Commissioner advises Mary's tax agent in writing that he is not satisfied she meets all of the criteria of section RP 17B(10) and declines her application to use backdated tax pooling funds to meet the increased amount of income tax resulting from the filing of her voluntary disclosure.
Note: A decision by the Commissioner to decline an application under section RP 17B(10) is a disputable decision and a taxpayer may challenge the decision by filing a Notice of Proposed Adjustment within the required response period from the date of issue of the Commissioner's written notification.
New section RP 17B(11) provides that the Commissioner's discretion be reviewed after one year, with specific regard to the impact of the discretion on voluntary compliance and the administration cost to Inland Revenue. The review will consider whether any amendments may be necessary or desirable and in particular whether the discretion is necessary. The Commissioner will report the findings and recommendations to the Minister of Revenue.
Correcting the use of tax pooling to eliminate imputation account debit closing balances
The provisional tax pooling rules currently include an unintended ability to use tax pooling funds to eliminate imputation account debit closing balances. This occurs when a taxpayer purchases or otherwise acquires tax pooling funds at an effective date that falls before the income tax year in which the tax pooling funds are to be used. This effectively allows a company to receive a backdated effective date for imputation purposes while paying a current provisional or terminal tax obligation. This circumvents the imputation rules, and does not reflect the original policy intent.
Section RP 19(3) has been amended so that the treatment of transfers from tax pooling accounts reflects the original policy intent. Taxpayers purchasing pooling funds must use an effective date that falls within the tax year (or income year in the case of non-standard balance date taxpayers) for which the funds are being used to meet a provisional tax or terminal tax obligation.
Generally taxpayers will purchase tax pooling funds on effective dates when provisional tax instalments are due, or (in cases where there is no liability for use-of-money interest) the terminal tax due date.
The Commissioner recognises that in some cases tax pooling funds may not be available at the exact effective date they are required by a taxpayer. Taxpayers will be able to purchase tax pooling funds to meet provisional or terminal tax obligations at any effective date within the tax year (or income year for non-standard balance dates) provided that this will not result in the misapplication of the tax pooling rules or any other provisions in the Revenue Acts. Where tax pooling funds are not available for purchase at any date within the tax year, taxpayers may purchase funds at later effective dates, including at the terminal tax date for a tax year.
Situations where the Commissioner will not allow taxpayers to use purchased backdated tax pooling funds include (but are not limited to):
- Imputation - tax pooling funds applied to meet an increased obligation for further income tax that are applied to a company's imputation account cannot be applied any earlier than the original due dates set out in section OB 65 of the ITA and section 140B of the TAA, as applicable.
- Non-income-tax revenues - tax pooling funds applied to meet an increased obligation for non-income-tax revenues cannot be applied any earlier than the original due date the obligation was due to be paid.
- Income tax - tax pooling funds applied to meet an "expected" obligation for terminal tax in excess of the provisional tax owing after 31 March of the relevant tax year and before the tax return for the tax year has been filed to mitigate an expected debit closing balance for the corresponding imputation year.
Such requests may be queried at the time the tax pooling intermediary submits a transfer schedule and in cases where the Commissioner is not satisfied that there will be an expected obligation for terminal tax the request will be held pending the filing of the tax return to confirm the funds are being purchased to meet income tax obligations, not imputation shortfalls.
Where such cases are identified after the income tax return for the year has been filed the Commissioner will alter the effective dates of any purchased funds that have been transferred to the taxpayer's account to the extent that these exceed the terminal tax owing and make consequential adjustments to the corresponding imputation return.
Example 14 - imputation
Crushed Rock Dust Supplies Ltd has a 31 March balance date and has a debit closing balance of $5,000 for its 2010 imputation year. Since the company's tax agent only prepared its 2010 income tax and imputation returns in March 2011 it is now too late to make a voluntary payment of income tax to mitigate the imputation shortfall as this needed to be done by 31 March 2010.
The company did not have any provisional tax obligations for the 2010 tax year and its 2010 terminal tax was nil. The company will not be able to purchase tax pooling funds for the 2010 tax year.
The company has estimated its 2011 provisional tax at $30,000 as it had secured a new contract and expected to make a profit in that tax year. Before the amendment to section RP 19(3) the company could have purchased $5,000 of tax pooling funds to meet its first instalment of 2011 provisional tax and chosen an effective date of 31 March 2010 and another $5,000 with an effective date of 28 August 2010, instead of purchasing the whole $10,000 as at 28 August 2010.
The amendment ensures that all taxpayers (not just companies) are required to nominate an effective date for all purchased pooling funds that falls within the tax year (or relevant income year for taxpayers who have non standard balance dates) or a later tax year if no funds are available at dates within the tax year.
In this example the company would have to nominate an effective date no earlier than 1 April 2010 for all purchased tax pooling funds that are applied to meet 2011 provisional tax (and any terminal tax obligations). The company will not be able to use backdated tax pooling funds to pay its 2010 further income tax, 10% imputation penalty tax, or any late payment penalties and use-of money interest payable as a result.
Examples 15 & 16 - non-income-tax revenue
Example 15
Crushed Rock Dust Supplies Ltd's GST return for the two month period ended 31 May 2011 showed GST to pay of $50,000 which was paid on the due date. Following an audit the company agrees that there is a discrepancy of $5,000 GST. A shortfall penalty of $500 also applies. On 30 September 2011 the company was issued with an amended assessment for the GST and an assessment for the shortfall penalty.
The company has 60 days from 30 September 2011 to purchase tax pooling funds to pay the increased GST obligation of $5,000 with an effective date of 28 June 2011, being the original due date of this return period (or a later date if it chooses). The company cannot purchase backdated tax pooling funds to meet the obligation to pay the shortfall penalty or any use-of-money interest that may arise in respect of the increased amount of $5,000 (if for example the only tax pooling funds available to purchase have effective dates after 28 June 2011).
Example 16
Cloud Cover Insurance Services Ltd's 2011 provisional tax obligations are $90,000 based on the standard option from its 2010 income tax return. The company has already paid the $90,000 into its 2011 tax account. In October 2011 the company's financials indicate its 2011 RIT will be approximately $120,000. The company also discovers that it will have an expected imputation account debit closing balance of $40,000 for the 2011 imputation year.
By purchasing the extra $30,000 to meet the expected income tax obligations from a tax pooling intermediary at effective dates prior to 31 March 2011 (for example $10,000 on each of its first two instalment dates of 28 August 2010 and 15 January 2011 and the last $10,000 on 31 March 2011), the company would also legitimately mitigate $30,000 of the $40,000 expected imputation debit closing balance by paying its income tax obligations for the corresponding tax year.
The company can purchase $30,000 on this basis on 19 October 2011 to meet a legitimate expectation that it will owe $120,000 income tax when it files its 2011 tax return by its extension of time date of 31 March 2012.
However, the company will not be able to purchase any more backdated tax pooling funds and will have to pay the remaining $10,000 of its expected $40,000 further income tax closing balance for 2011, 10% imputation penalty tax, and the late payment penalties and use-of money interest payable as from 21 June 2011.
Note 1: If the company's income tax obligations turned out to be $130,000 or more when it files its 2011 tax return it will have 75 days from its terminal tax date to purchase more tax pooling funds at backdated effective dates to meet the shortfall.
This will also have the effect of allowing an additional imputation credit on the same effective date as the tax pooling funds are purchased at (however this imputation credit does not arise until the day the Commissioner processes the transfer request from the company's tax pooling intermediary). If the effective date chosen for the terminal tax shortfall is on a date or dates that fall between 1 April 2010 and 31 March 2011 the imputation credits will arise in the 2011 imputation year.
Note 2: If the company's terminal tax turns out to be $80,000, the Commissioner will need to be satisfied that the $30,000 purchased in October 2011 was based on a legitimate expectation and how this changed after the funds were purchased and transferred into the company's 2011 tax account. If the purchase was based on a legitimate expectation, then the company will have one of the three options available in section RP 19B(5) in respect of the $30,000 excess.
If the Commissioner is not satisfied that there was a legitimate expectation that the company's 2011 RIT tax was going to be more than $90,000 then the Commissioner may alter the effective dates of the $30,000 of tax pooling funds to match the date of the transfer request (ie, 19 October 2011) and make a consequential adjustment to the 2011 imputation return to remove this credit (as it would arise in the 2012 imputation year).
Note 3: While imputation credits for $30,000 of purchased funds will have the same effective dates as the effective dates at which they are transferred into the company's tax account (in this case $10,000 on each of 28 August 2010, 15 January 2011 and 31 March 2011), the credits cannot be included in the 2011 imputation return until the Commissioner has actually transferred these amounts from the tax pooling account to the company's income tax account. In this example the imputation credits would arise on 19 October 2011 and be credited, respectively, on 28 August 2010, 15 January 2011 and 31 March 2011. Where an imputation return for an imputation year in which purchased tax pooling imputation credits arise was filed before the credits arose, the company will need to request the Commissioner to amend the imputation return when the funds are transferred from the tax pooling account to its income tax account.
Extending the definition of increased "amount of tax" to reflect the policy intent
In the past tax pooling could be used to pay an increased amount of tax only when there had been a prior assessment. It did not allow tax pooling to be used where an increase in the "amount of tax" did not arise from an increased assessment (for example a withholding tax obligation). Additionally, "amount of tax" is a defined term in section YA 1 of the Income Tax Act and this definition has unintentionally limited tax pooling to withholding taxes where amended assessments are issued.
New section RP 17B(8) aims to achieve two policy outcomes. First, to extend the revenue types that tax pooling can be used for, so it also includes income tax, FBT, GST, further income tax and imputation penalty tax payable under section 140B of the Tax Administration Act. Secondly, to bring the withholding taxes defined in 'amount of tax' in the section YA 1 definition into the tax pooling rules. These measures better reflect the policy intent of which revenues and in what circumstances tax pooling can be used.
The 10% imputation penalty tax can also be met using tax pooling to the extent that this relates to an increased amount of further income tax payable following an assessment of further income tax by the Commissioner. This concession is a pragmatic way to deal with this unique penalty provision for imputation.
Examples 17-19 - increased amount of tax (non-income-tax revenues)
Example 17
We Clean Luxury Cars Ltd files its FBT return for the quarter ended 30 September 2011 and pays its FBT obligation by the due date. In December 2011 the company makes a voluntary disclosure showing that it owes an extra $1,000 in FBT for the quarter. The company purchases $1,000 tax pooling funds as at the original due date for the FBT return to mitigate the use-of-money interest that would otherwise be payable.
The Commissioner accepts that the underpaid FBT was $1,000 and issues an assessment for the FBT period including this amount. Following the issue of the assessment the $1,000 of tax pooling funds the company purchased can be transferred from the tax pool and applied to the company's increased FBT obligation for the 30 September 2011 FBT quarter.
Note: If the company was liable for a shortfall penalty on the FBT shortfall, this cannot be met by using backdated tax pooling funds.
Example 18a
We Clean Luxury Cars Ltd discovers in late March 2012 while preparing its 2012 imputation return that it made an error in its 2011 imputation return filed on 7 July 2011. As a result the company's 31 March 2011 imputation closing balance alters from a credit of $3,000 to a debit of $1,000. As a consequence the company also determines that its 31 March 2012 imputation return is now expected to result in a debit of $2,000 instead of a nil balance. The company makes a voluntary disclosure and purchases $1100 tax pooling funds as at 20 June 2011 to mitigate the use-of money interest payable.
The Commissioner accepts that the error will result in an imputation shortfall of $1,000 and issues an assessment for further income tax of $1,000 setting a new due date. The company is also liable to pay a 10% imputation penalty tax pursuant to section 140B of the Tax Administration Act and a new due date is also set for this. Following the issue of the assessment of further income tax the $1,100 of tax pooling funds the company purchased can be transferred from the tax pool and applied to the further income tax and imputation penalty tax for the company's 2011 imputation year.
Note 1: If, for the 2011 tax year, the company had at least $1,000 of unpaid provisional tax (or income tax due on its terminal tax date) it could instead purchase $1,000 as an income tax payment (with an effective date no earlier than 1 April 2010 and no later than 31 March 2011) as long as it does so within 75 days of its 2011 terminal tax date. This would give rise to an imputation credit that would eliminate the $1,000 imputation debit.
Note 2: If the company has already met its 2011 income tax obligations it cannot purchase tax pooling funds at backdated effective dates for the 2011 tax year to make voluntary payments of provisional tax or income tax for the purposes of mitigating the imputation debit closing balance for the 2011 imputation year.
Note 3: The company should also consider the impacts of the 2011 imputation adjustment on its 2012 imputation year and if necessary ensure it makes voluntary payments of income tax by 31 March 2012, if necessary.
Example 18b
We Clean Luxury Cars Ltd does not make a voluntary income tax payment by 31 March 2012 to mitigate any expected imputation debit for the 2012 imputation year as identified in the previous example because the company expects that its 2011 terminal tax will be approximately $10,000 more than the provisional tax obligations it has paid and it intends to purchase tax pooling funds in April 2012 to meet this terminal tax shortfall. This will allow the company to choose an effective date that falls on or before 31 March 2011 for at least $1,000 of its $10,000 tax pooling purchase to eliminate the 2011 imputation debit closing balance through paying its 2011 tax obligations.
Example 19
Old Cars Recyclers Ltd has a 31 March balance date and files its 2011 income tax and imputation returns on 15 January 2012. The imputation return showed a debit closing balance of $2,000. The company has no income tax to pay for 2011 due to a loss carried forward. The company pays its further income tax, imputation penalty tax, late payment penalties and use-of-money interest on 15 January 2012 to clear its imputation debt.
In March 2012 the company discovers an error in its 2011 imputation return which increases its debit closing balance from $2,000 to $3,500. The company makes a voluntary disclosure in April 2012 and purchases $1,650 tax pooling funds as at 20 June 2011 to mitigate the use-of money interest payable.
The Commissioner accepts that the error will result in an additional amount of further income tax of $1,500 and issues an assessment setting a new due date to pay this increased amount. The company is also liable to pay a further 10% imputation penalty tax of $150 pursuant to section 140B of the Tax Administration Act and a new due date is also set for this. Following the issue of the assessment for further income tax the $1,650 of tax pooling funds the company purchased can be transferred from the tax pool and applied to the further income tax and imputation penalty tax for the company's 2011 imputation year as at 20 June 2011.
Note: If the company had at least $1,500 of unpaid provisional tax or income tax for the 2011 tax year it could instead purchase $1,500 to apply to its 2011 income tax obligation (with an effective date no earlier than 1 April 2010 and no later than 31 March 2011) as long as it does so within 75 days of its 2011 terminal tax date. This would give rise to an imputation credit that would eliminate the $1,500 imputation debit.
Clarification of effective date of transfer where section 157 Tax Administration notice applied
Section 157 of the Tax Administration Act has been amended to clarify that when a taxpayer has made a deposit or purchased tax pooling funds and fails to instruct their tax pooling intermediary to transfer the funds to meet their tax obligations, the concessions available for using tax pooling funds voluntarily will not apply. The amendment confirms that when a deduction notice is applied to seize the funds the effective date is the date the tax pooling intermediary pays the seized funds to the Commissioner. Previously it could have been argued that the deposit date of the funds was retained as the effective date.
Examples 20 & 21 - applying a deduction notice to tax pooling funds
Example 20
Henry has a 31 March balance date and made three deposits of $10,000 on 27 August 2010, 14 January 2011 and 6 May 2011 into a tax pool to meet his 2011 provisional tax obligations of $30,000. On 31 March 2012 Henry's tax agent files Henry's 2011 income tax return showing Henry's residual income tax is $25,000. Henry does not ask his tax pooling intermediary to transfer his deposits to meet his 2011 tax obligations. Inland Revenue contacts Henry fruitlessly on a number of occasions over the following months.
On 14 August 2012 Inland Revenue advises Henry that unless he asks his tax pooling intermediary to transfer at least $25,000 of the funds in the tax pool to meet his 2011 tax obligations within the next 7 working days, a deduction notice will be issued to seize them. Henry promises to do so straight away, but fails to.
On 24 August 2012 a deduction notice is issued to Henry's tax pooling intermediary to seize all $30,000 of the funds Henry deposited (because with penalties and interest accruing since 29 August 2010 Henry owes more than $30,000). The Commissioner receives the $30,000 on 28 August 2012 and applies this to Henry's income tax account with an effective date of 28 August 2012.
Note: Before using a deduction notice Inland Revenue will make reasonable attempts to determine why a taxpayer has not instructed their tax pooling intermediary to transfer their own deposited funds within a reasonable period after their terminal tax date. The Commissioner will consider the 75 day timeframe for purchased funds as being the starting point from which enquires will be made with taxpayers as to why they are unable to instruct their tax pooling intermediary to transfer their deposited funds to meet their income tax obligations.
Example 21
Graeme has a 31 March balance date and when he filed his 2011 income tax return on 7 July 2011 he had terminal tax of $8,000 to pay by 7 February 2012. Graeme purchases $8,000 on 7 February 2012 but does not instruct his tax pooling intermediary to transfer the funds at that time.
Graeme receives an arrears notice later in February 2012 and then a phone call from Inland Revenue on 28 March 2012. Graeme advises the debt officer that he has purchased tax pooling funds and will ask his intermediary to transfer these before 23 April 2012 (75 days after 7 February 2012 plus 1 day because the 75th day falls on a Sunday).
However Graeme fails to ask his tax pooling intermediary to transfer the tax pooling funds. On 25 April 2012 a deduction notice is issued to Graeme's tax pooling intermediary to seize all $8,000 of the funds Graeme purchased. The Commissioner receives the $8,000 on 27 April 2012 and applies this to Graeme's 2011 income tax account with an effective date of 27 April 2012.
Note 1: For purchased tax pooling funds, once the applicable timeframe has passed for the taxpayer's tax pooling intermediary to request a transfer to the taxpayer's account, the Commissioner can commence recovery actions in the same way as for any other overdue taxes.
Note 2: As the $8,000 seized will be applied to use-of-money interest owing first, Graeme will still owe some terminal tax and also late payment penalties which will not be able to be met with any further purchase of backdated tax pooling funds. Further use-of-money interest will accrue from 28 April 2012 on the remaining balance of terminal tax and late payment penalties.
Refusals to transfer amounts
Previously when taxpayers asked their intermediaries to process transfers that did not comply with the tax pooling rules Inland Revenue would decline to process the transfer or amend the transfer to comply with the tax pooling rules. But in cases when a tax pooling transfer is found to be incorrect after it has been processed, Inland Revenue would amend the transfer or reverse it. Section RP 20 has been amended to avoid any doubt that the Commissioner can decline to process, or amend, or reverse a tax pooling transfer if the request does not (or did not) comply with the tax pooling rules.
Example 22 - refusal to transfer
On 20 October 2011 Wilma purchases $25,000 of tax pooling funds with effective dates of 28 August 2010, 15 January 2011 and 7 May 2011 to meet her expected 2011 RIT of $75,000 (Wilma was not required to pay 2011 provisional tax as her 2010 RIT was less than $2,500). Wilma files her 2011 income tax return on 30 March 2012.
Prior to the amendment the Commissioner would not process the transfers until Wilma had filed her 2011 tax return. Furthermore, if the 2011 RIT was less than $75,000 the Commissioner would only allow transfers at the backdated effective dates these were purchased at to the extent of 1/3rd of the terminal tax. Any excess pooling funds purchased not used to meet Wilma's terminal tax obligations could only be transferred with an effective date of the date the tax pooling intermediary requested the transfer.
Wilma will no longer have her transfer request held if her tax return has not been filed. If Wilma's terminal tax turns out to be less than $75,000 after she files her tax return, the Commissioner will not revisit the transfers unless he considers that Wilma did not have a genuine reason to believe that she would owe $75,000 RIT at the time she purchased the tax pooling funds.
Note 1: However, if Wilma chose to wait until after she filed her 2011 tax return before asking her tax pooling intermediary to transfer her purchased funds, she will only be allowed to transfer the amount she owes at backdated effective dates. So if Wilma owed 2011 RIT of $70,000 and had made a payment of $1,000 on 28 August 2010 she would only be able to transfer $69,000 of the $75,000 she purchased at backdated effective dates.
This is because once a tax return has been filed the tax obligations for that tax year have been quantified and there is no longer any uncertainty of what is owed and what purchased funds are needed to satisfy the actual tax obligation for that tax year.
If Wilma would like the $6,000 which is not needed transferred into her 2011 income tax account, this cannot be with an effective date earlier than the date the Commissioner receives the tax pooling intermediary's request. If the tax pooling intermediary requested the $6,000 to be transferred on 1 April 2012 that would also be the earliest effective date that Wilma could choose.
Note 2: The same restrictions were also applied to taxpayers using their own deposited funds. Taxpayers transferring own deposited funds will not be subject to the "genuine reason" requirement or have a limit applied to the amount of own funds that can be transferred.
Deductibility of fees
New section DB 4B of the Income Tax Act provides that fees paid to a tax pooling intermediary to purchase an amount held in a tax pooling account to satisfy a liability for provisional tax, terminal tax, or an increase in an assessment are deducible to the taxpayer.
The deduction is allocated in the income year that the transfer is processed by the Commissioner into the taxpayers account to satisfy a tax liability.
Example 23 - deductibility of fees
On 22 June 2011 Joe purchases $30,000 of tax pooling funds to meet a shortfall in his 2011 provisional tax obligations. Joe has a 31 March balance date and paid $20,000 on each of his instalment dates but thinks his 2011 RIT will be $90,000. The fees Joe pays to the intermediary to purchase the $30,000 are incurred in the 2012 tax year (when he made the purchase) but will not be deductible until his intermediary has requested the transfer to be made and the Commissioner has processed this request.
Joe's tax agent files Joe's 2011 tax return on 31 March 2012 showing Joe's residual income tax is $96,000. Joe purchases another $6,000 on 10 April 2012 and asks his tax pooling intermediary to send a transfer request to the Commissioner for the total $36,000 he purchased to meet his 2011 tax obligations. The Commissioner receives the request from the intermediary on 16 April 2012 and processes Joe's transfers on 17 April 2012.
Both amounts of tax pooling funds were processed by the Commissioner in the 2013 tax year (on 17 April 2012) and Joe is able to claim a deduction for the fees paid to acquire both amounts of tax pooling funds in his 2013 tax year.
Administrative and other tax pooling matters
This section sets out required administrative changes resulting from the legislative amendments as well as some clarifications of how the Commissioner will apply the amended tax pooling rules.
Deposits into tax pooling accounts, due dates and non-working days
Inland Revenue will continue to ensure that deposits made into a tax pooling account to meet obligations that fall due on a non-working day are received in time as long as the deposit is received on the next working day (ie, the same day the due date is shifted to).
Deposits made by way of a request by a taxpayer to transfer excess tax from their tax account into a tax pooling account will be accepted as being received on the date the transfer request is received by Inland Revenue
This is consistent with Standard Practice Statement SPS 07/01: Tax payments - when received in time.
Tax pooling schedules
All tax pooling intermediaries will need to ensure that their transfer schedules have two additional columns added. These need to be named "Own Funds" and "Purchased Funds", respectively. Alternatively, transfer schedules can have two "Amount" fields, one named "Own Funds" and the other named "Purchased Funds".
Tax pooling intermediaries will need to ensure that at the point in time they complete a transfer schedule they can readily identify whether each transfer amount for each taxpayer is the taxpayer's own deposited funds or purchased funds to be able to correctly show this on the transfer schedule.
Where it is not clearly identifiable whether a transfer is a taxpayer's own funds or purchased funds, the transfer will be held pending checks with the tax pooling intermediary.
Where transfers noted as "Own Funds" are found to be "Purchased Funds" the Commissioner will amend the effective date (including reversing or amending transfers identified after they have been processed to the taxpayer's account) if the funds would be applied (or have been applied) to the taxpayer's account in a way that was not possible for purchased funds.
Transfers of deposits between tax pooling intermediaries
Tax pooling intermediaries must ensure where any taxpayer funds are transferred to another tax pooling intermediary, the receiving pooling intermediary is advised whether the funds being transferred are the taxpayer's own funds or purchased funds.
Where a taxpayer's own deposit is transferred from one tax pooling intermediary to another the deposit retains its character as the taxpayer's own deposit. For imputation companies there are no imputation effects for transfers of the company's own deposits between tax pooling intermediaries.
Reversing tax pooling transfer requests
Occasionally Inland Revenue is asked to reverse a tax pooling transfer after it has been processed to the taxpayer's account or to alter the transfer request before it is processed. The Commissioner's ability to correct errors on transfer schedules that are received and before they are processed is very limited, and even more limited after the transfer has been processed.
The Commissioner will continue to consider any such request to amend errors on a case by case basis taking into account how the error arose, why it arose and whether the correction of the error is possible under the tax pooling rules.
Errors that the Commissioner can correct on a schedule include:
- where an incorrect taxpayer's IRD number was entered by mistake;
- the tax year or period was entered incorrectly;
- an amount was transposed or entered incorrectly.
Sufficient evidence will need to be provided by the taxpayer and/or tax pooling intermediary to satisfy the Commissioner that an error has occurred and that the Commissioner can correct this in line with the tax pooling rules.
Situations which are not considered to be errors include:
- a taxpayer advising the intermediary of the wrong effective date and/or amount of a transfer;
- a tax pooling intermediary making a tax pooling transfer request outside of the legislative timeframes (60, 75 or 76 days, as applicable);
- after submitting a transfer request and before Inland Revenue processes it the underlying commercial contract is altered (either by using different funds or altering the effective dates of the funds on the schedule);
- a taxpayer changing their mind as to any aspect of their tax pooling transfer after it has been received by Inland Revenue;
- a taxpayer choosing to use purchased tax pooling funds instead of their own deposited funds or vice versa.
Where a taxpayer incurs late payment penalties or use-of-money interest as a result of an error that cannot be corrected, the taxpayer can apply for a remission if they meet the criteria set out in Standard Practice Statement SPS 05/10: Remission of penalties and interest.
If the error results in a transfer not being able to be processed as requested, it can be withdrawn if the taxpayer and tax pooling intermediary agree (see next heading below). However any new transfer request received will be treated as a new request.
Withdrawing tax pooling transfer requests
Where a tax pooling transfer request cannot be processed as requested, the Commissioner can decline to process the request or alter the amounts and/or effective dates of the amounts requested to be transferred. This is usually done with the taxpayer or their agent directly and may also involve the pooling intermediary.
The Commissioner will continue to allow a taxpayer and their intermediary to agree between them to withdraw a transfer request that cannot be processed as requested.
This concession is only available before the Commissioner processes the transfer. Once processed a transfer cannot be withdrawn, except where it did not comply with the tax pooling rules at all.
Where a transfer does not comply in part, for example the amount and/or effective dates need to be altered, those are the only alterations that will be possible.
Deposit made to Inland Revenue but intended for a tax pooling account
If a taxpayer makes a payment of tax to Inland Revenue but intended for the payment to be made into a tax pool, the payment can be refunded to the taxpayer or transferred to the tax pooling intermediary's tax pool account only if it is excess tax (ie, has not been applied to meet an obligation to pay tax). If such payment is able to be transferred to a tax pooling account, the effective date will be the date of the request to transfer the payment (ie, no backdating of the transfer date is possible).
Taxpayer requests for transfers into a tax pooling account
Taxpayers can choose to transfer excess tax from their tax accounts to a tax pooling intermediary's tax account. The effective date of the transfer is the date the transfer request is received by the Commissioner (or a later date the taxpayer chooses).
Any transfers into a tax pooling account are own deposited funds with a deposit date equal to the effective date of the transfer into the tax pool.
The above restrictions on choosing effective dates when transferring excess tax into a tax pool will continue to apply to funds that were originally sourced from a tax pool which become excess tax, including if the funds were own deposited funds.
Transfers to meet increased amounts and/or deferrable tax
Transfer requests received before an assessment is made resulting in an increased amount of tax and/or where court proceedings have been finally determined but the required ledger actions have not occurred will continue to be held until the increased amount and/or deferrable tax transactions giving effect to the court proceedings have been updated in FIRST. This restriction only applies to purchased tax pooling funds.
Debt policing
Because the use of tax pooling funds allows income tax and provisional payments to be made after the terminal tax due date, debt policing processes may still occur between the terminal tax date and the date the tax pooling funds are transferred into a taxpayer's tax account.
This is because the Commissioner does not necessarily know that a particular taxpayer will use tax pooling funds to meet their income tax and/or provisional tax obligations until a transfer schedule is received from their tax pooling intermediary.
If taxpayers are contacted by Inland Revenue in respect of overdue income tax and/or provisional tax before their tax pooling funds have been transferred, a note can be added to the taxpayer's file recording that tax pooling funds will be used to meet the tax obligations and approximately when the funds are expected to be transferred.
This should ensure no further proactive contact will occur before the date the tax pooling funds are transferred. However some automated debt policing letters may still be issued. These can be ignored if tax pooling funds will be used to meet core tax owing in full as at the respective provisional and terminal tax due dates within the timeframes allowed to transfer tax pooling funds.
Company amalgamations
Where companies amalgamate and either form a new amalgamated company or one of the amalgamating companies continues on as the amalgamated company, any tax pooling funds the amalgamating companies had which vest in the amalgamated company will retain their character for the purposes of the tax pooling rules as follows:
- the amalgamating companies' own deposited funds in a tax pooling account will be own deposited funds of the amalgamated company; and
- the amalgamating companies' purchased funds in a tax pooling account will be purchased funds of the amalgamated company.
Struck-off companies
Inland Revenue cannot process tax pooling transfer requests where it is identified at the time the transfer request is made, that the company has been struck off the companies register.
Once a company has been struck off the companies register the Companies Act 1993 provides for a struck-off company's assets (which includes funds the company holds in a tax pooling account) to be vested in the Crown. A struck-off company cannot make deposits or purchase tax pooling funds, nor receive refunds of tax pooling funds from a tax pooling account.
A transfer request made to transfer tax pooling funds while a company is struck off has no legal status and will be invalid (ie, there is no authority for any person to act for, or on behalf of, a struck-off company to make the transfer request). The same applies to any requests for refunds from a tax pooling account.
A struck-off company would have to be restored to the companies register before Inland Revenue is able to process a tax pooling transfer request or a tax pooling intermediary can refund an amount held in the tax pooling account for the company. However, in respect of declined transfer requests, a new request would then have to be made once the company is restored to the companies register (and must be received by Inland Revenue within any applicable timeframe if a backdated effective date is requested).
Imputation credit accounts and tax pooling deposits, purchases, sales and refunds
Tax Information Bulletin Vol 16, No 1 (February 2004) explains how the imputation rules apply to tax pooling deposits, purchases, sales and refunds for consolidated imputation groups and all other companies that maintain imputation credit accounts under the Income Tax Act 1994. The following information updates the section references to the Income Tax Act 2007, but is not otherwise intended to alter the application of the imputation rules and the examples in the above TIB are still reflective of the current law.
(a) Consolidated imputation transfer within a tax pooling account
Where a consolidated imputation group has made deposits into a tax pooling account and decides to transfer this deposit (including by way of swap, exchange, etc) to another member of that tax pool a debit will arise in the consolidated group's imputation account, pursuant to section OP 33 of the Income Tax Act.
The imputation debit arises and is allocated:
- firstly, to the previous imputation year to the extent that there is a credit closing balance;
- secondly, if the debit is not fully allocated under the above bullet point, the balance is allocated to the imputation credit balance (if any) that exists on the day of the transfer; and
- any balance not allocated under previous bullet point is allocated to the previous imputation year.
Example 24
ABC Consolidated Group Ltd is a consolidated imputation group which made a deposit into a tax pooling account on 15 January 2009 of $100,000. It also received an imputation credit of $100,000 for the imputation year ended 31 March 2009.
For the imputation year ended 31 March 2010 the company's balance was a $30,000 credit. On 1 February 2011 the company's imputation credit account is $10,000 in credit.
On 1 February 2011 the company swapped its deposit with another taxpayer in the same tax pool. In return the company received a $100,000 deposit made by the other taxpayer with an effective deposit date of 27 August 2010.
On 1 February 2011 a $100,000 imputation debit arises and is firstly allocated to the 2010 imputation year to the extent of the $30,000 closing credit balance. Secondly the remaining $70,000 debit is allocated to the 2011 imputation account to the extent of the $10,000 credit balance on 1 February 2011 and thirdly the unallocated balance of $60,000 is applied to the 2010 imputation year.
This creates a debit closing balance of $60,000 further income tax which was due to be paid by 20 June 2010 and accrues imputation penalty tax of $6,000, use-of-money interest and late payment penalties.
Additionally the 2011 imputation year opening balance will alter from a credit of $30,000 to a debit of $60,000.
Note: The company will not receive an imputation credit for the $100,000 it received from the other taxpayer until it uses those funds to meet an income tax obligation (because these are purchased funds). Assuming the company can and does use the $100,000 it received with an effective date of 27 August 2010 to pay its 2011 income tax, it will receive an imputation credit of $100,000 in its 2011 imputation year as at 27 August 2010. However this credit will only arise when the Commissioner transfers the $100,000 to the taxpayer's 2011 income tax account following receipt of the tax pooling intermediary's transfer schedule.
Example 25
XYZ Consolidated Group Ltd is a consolidated imputation group which made a deposit into a tax pooling account on 9 June 2010 of $50,000. It also received an imputation credit of $50,000 for the imputation year ended 31 March 2011.
For the imputation year ended 31 March 2010 the company's balance was a $20,000 credit. On 1 February 2011 the company's imputation credit account is $10,000 in credit.
On 1 February 2011 the company sold its deposit to another taxpayer in the same tax pool. The purchasing taxpayer pays the amount into the tax pooling intermediary's trust account on 2 February 2011 to complete the sale.
XYZ Consolidated Group Ltd decides to deposit the funds it has received as a new tax pooling deposit, instead of having these paid out to it by the tax pooling intermediary and this deposit is received on 3 February 2011.
On 1 February 2011 a $50,000 imputation debit arises and is firstly allocated to the 2010 imputation year to the extent of the $20,000 closing credit balance, secondly the remaining $30,000 debit is allocated to the 2011 imputation account to the extent of the $10,000 credit balance on 1 February 2011 and thirdly the unallocated balance of $20,000 is applied to the 2010 imputation year.
This creates a debit closing balance of $20,000 further income tax which was due to be paid by 20 June 2010 and accrues imputation penalty tax of $2,000, use-of-money interest and late payment penalties.
Note: The company will receive an imputation credit for the $50,000 it received on 2 February 2011 in payment for selling its earlier deposit, but this credit will only arise on 3 February 2011 when this amount was deposited into the tax pooling account (ie, it will not stop the company from going into debit by $20,000 as at 31 March 2010).
It is therefore advisable for companies who wish to use the proceeds from sales of their own earlier deposits as a new tax pooling deposit to seek to enter into commercial contracts with their tax pooling intermediaries and the purchasing party that result in the sale, payment and new deposit all occurring contemporaneously.
In the above example this date would be 1 February 2011 and the outcome would then be as set out below.
On this date the company sold its deposit to another taxpayer in the same tax pool. The purchasing taxpayer pays the amount into the tax pooling intermediary's trust account on 1 February 2011 to complete the sale.
XYZ Consolidated Group Ltd decides to deposit the funds it has received as a new tax pooling deposit, instead of having these paid out to it by the tax pooling intermediary, and this is also done on 1 February 2011. On 1 February 2011 a $50,000 imputation debit arises due to the sale and also a $50,000 credit arises due to the new deposit. The $50,000 debit is firstly allocated to the 2010 imputation year to the extent of the $20,000 closing credit balance. Secondly, the remaining $30,000 debit is allocated to the 2011 imputation account against the $60,000 credit balance on 1 February 2011.
Because the imputation credit balance as at 1 February 2011 is more than the $30,000 debit allocated, no unallocated balance remains to be applied to the 2010 imputation year (ie, the 2010 imputation closing balance will remain at $0.00, not go into debit).
If the funds being transferred are purchased funds the same imputation debit rules apply, however the company will also receive an imputation credit on the day the funds are transferred pursuant to section OP 9(3)(c).
(b) Consolidated imputation refund from a tax pooling account
Where a consolidated imputation group receives a refund of its own funds or funds it has purchased (ie, it does not use them to meet an obligation to pay tax) a debit will arise in the consolidated group's imputation account, pursuant to section OP 32 of the Income Tax Act in exactly the same way as for a transfer of the company's own funds (set out above).
The only difference is that if the funds being refunded are purchased funds (including by way of transfer, swap, etc) on the same day as the refund is issued from the tax pooling account, an imputation credit will arise pursuant to section OP 9(3)(b).
(c) Imputation transfer within a tax pooling account and refund from a tax pooling account for all other imputation companies
For all other companies except for qualifying companies, the same imputation rules as for consolidated imputation groups apply. The equivalent provisions are:
| Consolidated group | Other companies (excluding qualifying companies) |
|---|---|
| Section OP 32 | Section OB 34 |
| Section OP 33 | Section OB 35 |
| Section OP 9 | Section OB 6 |
For a qualifying company the debit arises in its imputation account on the same date the transfer or refund, as applicable, is made (ie, the date the transfer or refund is processed by the Commissioner).
Tax pooling forum
Inland Revenue has established a tax pooling intermediaries' forum. The objectives of the forum include:
- discussing tax pooling related issues and finding workable solutions to these within the legislative provisions the Commissioner administers;
- communicating information on tax pooling matters to tax pooling intermediaries;
- raising issues of interpretation of the tax pooling rules for Inland Revenue to consider and resolve; and
- providing feedback to the Commissioner on proposed operational changes or implementation of new tax pooling operational policies and interpretation of the tax pooling rules.
1 Except in the case of company amalgamation, purchased funds include any acquisitions of tax pooling funds deposited by another person, including by way of sale, transfer, gifting, swapping, etc.