How pooling optimisation works

Overview

TaxLab automatically determines whether pooling or attributing benefits results in the lowest tax rate, ensuring a tax-optimised outcome. This article explains how the optimisation logic works, how to view the results, and how to ensure they are accurate.

Optimisation logic

Pooling vs. attribution: How it works

Section RD 47 and Section RD 49 of the Income Tax Act allow 6 specific pooling categories to either be pooled or attributed when employees receive a total amount of benefits in that pooling category in that year that are less than specified thresholds:

• The decision to pool or attribute in a pooling category must be applied to all eligible employees in that pooling category in that year so you can’t pick and choose per employee. 
• A decision to pool or attribute in a pooling category impacts the decision to pool or attribute for all other pooling categories so there are a total of 64 scenarios to work through to determine the best result (2 options in 6 categories means 2⁶=64).
• All employees with benefits above the threshold for that pooling category are automatically attributed.

As part of the Quarter 4 attribution calculation, our optimisation logic reviews all 64 scenarios to determine the combination that results in the lowest overall tax liability. The optimised outcome depends on your specific data, but generally:

If benefits are mostly below the threshold in a pooling category:

• And most employees are high-salary: The logic will likely choose to pool the benefits in that pooling category at the lower pool rate.
• And most employees are low-salary: The logic will likely choose to continue attributing benefits in that pooling category to take advantage of lower individual attribution rates.

Viewing optimisation results

• In Workpapers > Attribution, benefits will appear as assigned to a 'POOL2_OPT' employee when the optimisation logic determines that applying the pool rate is more beneficial. These benefits will not be included in amounts attributed to specific employees.
• In Workpapers > Benefits, the Treatment column will show some benefits as Pooled, even if you originally selected Attribute. This is because the optimisation logic has determined this rate is more beneficial. However, when you select the individual benefit, the Treatment will display as "Attribute" in the pop-up window because that was its original treatment. This is expected behaviour.

Ensuring an accurate result

1. Attribute quarterly
   Attributing detailed benefits to employees quarterly is always recommended. This helps improve accuracy in Q1–Q3 and makes Q4 significantly easier, as you only need to upload and review Q4 data instead of replacing earlier quarters with full-year figures and reconciling with filed Q1–Q3 returns. Checking detailed data each quarter also makes it easier to catch and fix mistakes in earlier returns, as less time has passed.
2. Review your benefit and pooling categories
   Each benefit must be assigned to the correct benefit category, and each benefit category must have the correct pooling category for calculations to be accurate. Incorrect benefit or pooling assignments can lead to inaccurate de minimis, attribution and pooling optimisation calculation results.
   Important - When a new benefit category is created manually or through an import, it defaults to the 'Unclassified' pooling category. As the software can’t determine if this default is correct, you should review each quarter and update it if needed before finalising your return.
3. Upload employees full year gross pay
   The full year gross pay must be uploaded for each employee who received benefits to ensure accurate attribution and pooling optimisation in Q4. 

Troubleshooting

My benefit category has an incorrect pooling category

To change this:

1. On the Benefits page, click the Settings cog button on the benefit category you want to edit.
2. Edit the pooling category, as required.
3. Click Save.

My spreadsheet gives me a different result

Spreadsheets are not typically designed to analyse all 64 scenarios and determine the optimal result. If you’ve reviewed this article and the relevant legislation in detail, including how pooling optimisation works, but are still unsure, feel free to contact our support team.

Related articles

Benefit categories

Add or import benefits

Import employee salaries