COVID-19 New relief measures for small and medium businesses
The Government has announced new relief measures to boost confidence and help small and medium-sized businesses get through the COVID-19 crisis.
The package includes:
- a tax loss carry-back scheme
- changes to the tax loss continuity rules
- greater flexibility for taxpayers in respect of statutory tax deadlines
- measures to support commercial tenants and landlords, and
- further business consultancy support
- remittance of Use of Money Interest
- depreciation on non-residential buildings
- low-value asset write-off
- provisional tax thresholds
- wage subsidy
Tax loss carry-back scheme
This enables a business to offset a loss in a particular tax year against profit in a previous year, producing a refund of the tax paid in the previous profitable year, boosting cashflow. Businesses expecting to make a loss in wither the 2019/20 year or the 2020/21 year can estimate the loss and use it to offset profits in the previous year.
A tax bill being introduced the week beginning 27 April will include a temporary mechanism for this. The Government proposes a permanent scheme, subject to public consultation in the second half of 2020, to apply for the 2021/22 and later income years.
Inland Revenue’s website notes 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 will be contacting clients and discussing this before sending out 7 May provisional tax slips.
Use of money interest will be charged if the loss is over-estimated and an excess amount has been refunded.
Change to tax loss continuity rules
The tax loss continuity rules will be relaxed from the 2020/21 income year to support businesses trying to raise capital. Currently, if a company has more than a 51% change in ownership it cannot keep its tax losses. The change allows more businesses to carry forward losses. A tax bill for introduction in the second half of 2020 will provide further details. The new rules will include a ‘same or similar business’ test, meaning the business must continue in the same or a similar way it did before ownership changed.
Greater flexibility around tax deadlines
Inland Revenue will have greater discretionary power to extend due dates and timeframes, or to modify procedural requirements set out in the Revenue Acts. This could include extending deadlines for filing tax returns and paying provisional and terminal tax. At this stage, the power will be time-limited for a period of 18 months and will apply to businesses affected by COVID-19.
It’s expected that the tax bill for introduction on 27 April will include amendments to the Tax Administration Act 1994.
Supporting commercial tenants and landlords
The current timeframe for commercial landlords to cancel a lease will be extended from 10 to 30 working days. The changes allow for more time for breaches or defaults to be remedied, covering:
- the period the tenant is in arrears before notice is given, and
- the period required to remedy the breach before the landlord can cancel the lease and the mortgagee can exercise their rights to sale or repossession.
The Government is also extending timeframes for commercial mortgages and home loans. The timeframe for lenders will be extended:
- from 20 to 40 working days, for mortgaged land, and
- from 10 to 20 working days, for mortgaged goods.
These changes are included in the bill to be introduced on April 27 and will apply retrospectively once passed.
Free business consultancy support
Businesses will be able to access free, specialist support for issues including business continuity planning, finance and cash flow management, HR and staffing issues, and potentially any sector-specific issues. The Regional Business Partner Network will scale up advisory services, so more businesses receive support over the next year.
Gilmore Taylor Associates Limited are registered as a Business Partner. Please contact us if you wish to utilize this service and we can help you register. Currently these grants are up to $2,000.
Remittance of Use of Money Interest (UOMI) due to COVID-19
To be eligible for remittance of penalties and UOMI, the following criteria must be met –
- The taxpayer has tax that is due on or after 14 February 2020;
- The taxpayer’s ability to pay by the due date, either physically or financially, has been significantly affected by COVID-19;
- The taxpayer will be expected to contact the Commissioner as soon as practicable to request relief and will also be required to pay the outstanding tax as soon as practicable.
Historically UOMI is rarely remitted, usually for adverse events and IRD errors, but not for financial difficulty. UOMI will only be remitted after core tax has been paid, and this needs to be paid as soon as practicable.
Inland Revenue is currently developing further guidance. Remission may be possible if the taxpayer has been significantly affected by COVID-19, revenue has dropped by at least 30%, and other options for financial support has been explored such as additional funding.
Depreciation on Non-residential Buildings
From the start of your 2020/21 income tax year depreciation on non-residential buildings will be bought back in.
This will apply to all new buildings, and those owned before depreciation on buildings was abolished in 2011/12. Those buildings which have had capital improvements during this time will have the of the improvements added to the capital value of the building.
Low-Value Asset Write-off
Previously assets under $500 could be expensed. From 17 March 2020 to 16 March 2021 this amount will increase to $5,000. From 17 March 2021 the amount will decrease back to $1,000. The aim is to encourage investment post COVID-19 recovery.
Provisional tax thresholds
If your residual income tax was under $2,500 you were not required to pay provisional tax. From the start of your 2020/21 tax year this will be increased to $5,000.
If you no longer meet the requirements to receive the wage subsidy, it will need to be repaid. To repay the subsidy you can email COVID19subsidy_overpayment@msd.govt.nz with your:
- business name
- IRD number
- New Zealand Business Number (NZBN), if you have one
- phone number
- email address
- postal address
You’ll also need to advise them:
- the amount you need to refund
- why you want to refund it
MSD will then contact you confirming the refund amount and how you can make the repayment.
The wage subsidy is exempt from GST. Please code any subsidy received separately in your accounting system.
We expect to see further support for businesses and households as we go on. Meanwhile, contact us so we can work together on how these changes could support your business recovery.