“The process is so complicated and time-consuming that only a handful of our largest companies have done it,” Taylor said.
Taxi is billed as the first to give all small businesses a quick and easy way to tap the same perk.
“We’re democratising access,” Taylor said. (Even if the ability to offer it is a closed club. Provisional tax funds can only be tapped via an IRD-approved tax pooling intermediary, of which there are only five; one is Taxi’s parent company, Tax Traders, co-founded by the Taylors in 2012).
Your tax deposit is the security for your loan, so there are no financial disclosures, credit checks or lien over your home or other assets, and you can even skip payments during the repayment term of up to nine months - as long as you catch up. Funds are promised within three working days.
Your firm does have to be profitable, compliant with AML regulations and other laws, and make provisional tax payments on time. If your provisional tax payments lower, your loan limit automatically lowers. Taxi charges a 0.15 per cent per month “facility fee” on the sum of a client’s tax credits (deposits you’ve made to the tax pooling account), with a minimum $30 per month, which Taylor frames as compatible to a bank overdraft fee.
And you do have to give Taxi access to your MyIR account so it has a view of whether you’re keeping up with your provisional tax payments.
The money must be used for your business. You have to transfer tax credits to Taxi, which has the right to sell them if you default.
Taxi can be additional to your bank overdraft because it’s off-balance sheet funding. That is, it doesn’t impact on your banking relationship, Taylor said.
Your accountant doesn’t have to be in the loop - but it’s encouraged.
NZIER sees big boost
Modelling for Taxi by Bealing found that even conservative uptake of Taxi (defined as 10,000 businesses accessing up to $50,000 each) could save $50m in interest payments per year, Bealing said.
It would give the firms the ability to grow - which, in turn, would boost GDP by up to $900m per year.
Long-term, widespread use of the product (defined as 290,000 businesses accessing $20,000 each) would increase GDP by up to $10.8 billion or 2.7 per cent annually – equivalent to the food and beverage manufacturing industry, according to the economist’s modelling, Bealing said.
Taxi, launched in beta (or limited trial) version in November last year, had been up and running for 10 days when the Herald spoke to Taylor earlier this week. She said 100 firms had signed up in the first 10 days.
“The financial costs of capital of accessing funds through Taxi is half the cost of accessing funds using a bank overdraft,” Bealing said.
“In addition, because Taxi is a New Zealand company, economic value is retained in New Zealand in a way that doesn’t happen with the major trading banks,” he said.
“Greater access to business investment funding via Taxi presents an opportunity for capital investment that could contribute to closing the output and productivity gaps while reducing the pressure for longer workdays,” Bealing said.
What is provisional tax?
Provisional tax is paid during the year by sole traders and any business that paid more than $5000 in residual income tax for your previous annual tax return. The idea is that instead of being thumped with a big tax bill at the end of the year, things are smoothed out with payments every four months, based on your prior year’s numbers, and a wash-up at the end of the financial year (where you might pay a bit more, or IRD might return some of your money, depending on your final financials). Your provisional tax payments are held in a Public Trust account during the financial year.
Chris Keall is an Auckland-based member of the Herald’s business team. He joined the Herald in 2018 and is the technology editor and a senior business writer.
