COVID-19 – Additional Tax Relief Measures
Further tax relief measures will be welcomed by the business community as the New Zealand Government looks towards kick-starting the economy.
A special report has been released by Inland Revenue in April 2020 detailing the temporary measures that have already been implemented under the COVID-19 Response (Taxation and Social Assistance Urgent Measures) Act 2020, enacted on 25 March 2020, to mitigate the effect of COVID-19 on businesses and individuals in NZ including:
- Depreciation deductions for non-residential buildings;
- Increasing the provisional tax threshold from $2,500 to $5,000;
- Increasing the low-value asset write-off threshold from $500 to $5,000;
- Access to refunds for Research & Development tax credits;
- Use of money interest remission on late payments as a result of COVID-19;
- A number of “social assistance support” measures including the wage subsidy.
Alongside these measures, the Government is continuing to develop additional measures in ongoing support for business affected by the COVID-19 pandemic and subsequent lockdown including a $3.1 billion tax relief package announced on 15th April 2020. While the details of most of the measures still require a lot of fleshing out, we summarise for you some of the proposals that have been announced since our last blog, including:
- A tax loss carry-back scheme;
- Changes to the tax loss continuity rules; and
- Greater flexibility for taxpayers around tax deadlines.
Temporary loss carry-back scheme:
One of the main action points is a “tax loss carry-back scheme.”
This will enable businesses that are expecting a loss in either the 2019/20 year or the 2020/21 year to estimate that loss and offset it against profits in the immediate past year (i.e. carry the loss back one year) and potentially obtain a refund (or reduce their tax payable). This would release some cash back to businesses who would otherwise have to carry forward losses until a year when they make a profit. And for some, this could be a few years away.
Inland Revenue have stated that “taxpayers do not need to rush to re-estimate their provisional tax before 7 May. Part of the proposed law change would make it possible for them to re-estimate it after the date of the final instalment. This will give them more time to work out any estimated loss for the 2020/21 income year.” We welcome this proposal, but note that it could be complicated to calculate an estimated loss in the current year when most businesses are only a month or two into the financial year, and where each business will be impacted differently depending on their industry and the activities permitted under the different Levels, and when we reach each Level.
There is a Government proposal for a permanent loss carry-back scheme to apply to 2021/22 and later incomes years, however this will be consulted on later in 2020.
Changes to the tax loss continuity rules:
Alongside the tax loss carry-back scheme is the Government’s proposal to relax the tax loss continuity rules, with legislation expected to be introduced by March 2021, applying to 2020/21 and later income years. In some cases the two will need to compliment each other.
While current rules mean that if a company has a more than 51% change of ownership, it cannot keep its tax losses, the proposed changes would mean that if the business is continued “in the same or a similar way” to what it did before ownership change, the losses would be able to be carried forward. This is modelled on the “same or similar business” test that Australia uses. This is expected to assist businesses which need capital from new investors without compromising tax losses. But it could also have wider benefits for general restructuring within a group – let’s wait for the detail here.
Changes to tax payment due dates:
The Government is proposing to give Inland Revenue some discretion around tax payment dates and timeframes for filing tax returns which will apply to both businesses and individuals affected by COVID-19.
These tax relief measures are to be introduced in a bill in the week beginning 27th April 2020.
Alongside these tax relief measures are measures to support commercial tenants and landlords by extending timeframes required before landlords can cancel leases and mortgagees can exercise their rights of repossession or sale; and further business consultancy support through services such as the Regional Business Partner Network and helplines run by the Employers and Manufacturers Association and Canterbury Chamber of Commerce.
Ultimately, cash is king and we welcome any initiatives that will release or relieve cashflow for the many businesses (and people) who will inevitably be struggling. Some of the proposed tax changes are long overdue and shouldn’t be linked to, or restricted to, COVID-19 responses. And that means the legislation should not restrict how these changes will be applied. In the meantime, let’s remember that we are all in this together, in our separate bubbles (with our teddy bears).
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