The heavy deluge of rain that fell during the Tasman Tempest in March wreaked havoc on farms in the Franklin ward, Hauraki and Thames-Coromandel districts where reports have estimated the one-in-80-year event brought from 350mm to 850mm of rain.

Those significantly impacted by the floods that ensued are now dealing with the ramifications as they assess the damage. Loss of livestock, landslips, debris, broken fences and silt are some of the problems they've been confronted with.

Tax Management NZ chief executive Chris Cunniffe says an unfortunate consequence is this will put pressure on cashflow as farmers look to get back on their feet.

'After all, the clean-up costs money and will be a top priority for many right now.

'At least the Government has provided some relief. With the flooding in affected areas being classified as a medium scale adverse event, Inland Revenue has decided to relax the income equalisation scheme rules to allow early withdrawals for those who have funds in the account –normally one would have to wait at least 12 months – and late deposits for the 2016 income year to be made up until the end of the month.”

That will be of assistance to some. Another option farmers affected by flooding may wish to consider to free up cashflow is tax pooling. Chris says an IRD-approved tax pooling intermediary can be used to defer upcoming payments of provisional tax for up to 12 months, without incurring IRD interest – currently 8.27 per cent – and late payment penalties.

Terminal tax

'Many farmers will have terminal tax due to IRD on April 7, and may also have to pay their final instalment of provisional tax for the 2017 tax year on May 7. Postponing payment of the latter might be timely if cashflow is tight or you have a better use for the funds.

'The upfront finance fee, which is based on the amount of tax required and the date in the future you wish to pay, to enter such an arrangement is much cheaper than most other traditional forms of finance. For $1965, a farmer can make a $50,000 provisional tax payment due on May 7 disappear for a year. Approval is guaranteed and the fee tax deductible.”

How it works

On May 7 – and on every other provisional tax date – a tax pooling intermediary pays tax into a special account at IRD and this payment is date stamped.

When the taxpayer pays the tax it owes to the intermediary on the agreed upon date in the future, the intermediary arranges for the deposit to be transferred to the taxpayer's IRD account.

IRD treats the tax as if it was paid on the date it was originally due when it processes the transfer, eliminating any IRD interest and late payment penalties.

'As always, be sure to seek the advice of your accountant. Timely budgeting and financial advice will be essential to help farmers in flood-affected areas manage their cashflow and income tax obligations,” says Chris.

MNZ is a New Zealand tax payment intermediary. Its clients include thousands of small and medium-sized businesses as well as some of New Zealand's largest banks, state-owned enterprises and well-known corporate names.