Tax pooling has traditionally been a forward-looking tool, helping taxpayers manage provisional tax timing and reduce exposure to use-of-money interest.

The Taxation (Annual Rates for 2025–26, Compliance Simplification, and Remedial Measures) Act now extends its application to allow pooling to be used to manage certain prior-year income tax liabilities.

What’s changed

The Act extends the use of tax pooling to allow taxpayers to settle income tax owing for the 2022–23 and 2023–24 income years using pooling arrangements.

The change:

• allows pooling to be applied to prior-year income tax obligations
• provides a time-limited opportunity to access pooling for those years
• applies subject to conditions and eligibility requirements

This extends the traditional forward-looking use of pooling. The Amendment Paper describes this as a pilot measure for specific prior income years, which may enable Inland Revenue to determine whether income tax debt can be effectively collected through a longer tax pooling period.

Why it matters

A second chance to manage prior-year tax

For taxpayers with income tax owing from earlier years, the change provides an opportunity to:

• use pooled tax credits to satisfy outstanding liabilities
• revisit positions where provisional tax did not align with final outcomes
• potentially reduce exposure to Inland Revenue use-of-money interest

This offers a structured way to manage historic tax positions.

Cashflow and funding flexibility

The change may support improved cashflow management by allowing taxpayers to:

• use pooling as an alternative to paying Inland Revenue directly
• align repayment with current financial capacity
• manage historic balances more proactively

As with standard pooling arrangements, outcomes will depend on pricing and availability in the pooling market.

For example, a company has residual income tax of $80,000 for the 2023–24 income year due to underestimation of provisional tax. Instead of paying the amount directly to Inland Revenue and incurring use-of-money interest, the company may be able to:

• purchase tax credits from a pooling intermediary
• apply those credits to satisfy the 2023–24 liability
• potentially reduce interest costs compared with Inland Revenue rates

This provides an alternative way to manage the shortfall and align payment with current cashflow.

Conditions and practical operation

The rules apply subject to conditions. While the legislation does not set out detailed operational criteria, the measure is expected to operate within existing tax pooling frameworks.

In practice, this may mean:

• access is linked to a taxpayer’s overall compliance position
• arrangements are made through a tax pooling intermediary
• entry into pooling arrangements may be required within a defined timeframe
• the measure appears to operate as a targeted initiative, rather than a broad concession

The change is intended to support repayment of existing income tax owing while improving Inland Revenue’s overall debt recovery outcomes.

Practical considerations

Consider:

• whether there is income tax owing for the 2022–23 or 2023–24 income years
• whether pooling provides a cost-effective alternative to existing arrangements
• the timing of any action, given the limited window
• whether the taxpayer’s compliance position supports access

The extension of tax pooling to prior-year liabilities is a targeted but practical development. It provides an additional option for taxpayers to address historic positions in a structured way, while supporting Inland Revenue’s broader debt recovery objectives.