Taxing Times

In the past month, the New Zealand Government and Inland Revenue have made (or announced) the following significant tax changes in their response to a COVID -19 economy.

First Verse

Passed into legislation on 25 March 2020, the first changes were:

• Restoring depreciation deductions for commercial buildings from 1 April 2020 on; for 31 March balance dates;
• Increasing the low asset write off to $5000 for the year starting 1 April 2020 and increasing provisional tax thresholds;
• Bringing forward application dates for the refundability of research and development tax credits; and
• Providing Inland Revenue with discretion to write off use of money interest resulting from the COVID 19 environment.

Chorus

More significant tax changes were announced on 15 April with the stated intention of improving the cash flow of small and medium-sized business.

These changes include:

• A carry back scheme where tax losses recorded in the 2020- or 2021-income year can be offset against tax profits made in the previous income year. This will allow previous tax payments to be refunded;
• A “same or similar business” test will be included in the loss continuity rules for the 2021 income year, this may allow losses to be carried forward and utilised even if the 51% shareholder continuity of ownership has been breached; and
• Inland Revenue given more discretion to temporarily change due dates for certain tax returns and payments

Inland Revenue are currently consulting with external groups on the changes with draft legislation expected by 27 April 2020.

What Can You Do NOW

The chorus is likely to be refined over the next week. We do expect further verses from Inland Revenue over the next 12 months as we adapt to our new normal.

Relief and opportunity will available in these tax changes. The full extent of this will be known once legislation is available and we see how Inland Revenue will operate in the changed environment.

In the meantime, we suggest the following course of actions with respect to tax:

• Pay PAYE and GST on time and in full if possible, dont pay 7 May Provisional Tax and instead apply to IRD for COVID relief or buy tax from an IRD approved tax pooling intermediary like Tax Management NZ Ltd;
• If unable to pay, document/evidence the actions you took to try and find funding for these payments i.e. discussions with banks, alternative financing;
• Complete your accounts/tax return for 2020 income year as soon as possible;
• Consider deductions around annual leave payments after balance date and bad debts; and
• Once legislation is in place for the loss carry back scheme, give consideration to whether you can apply to have previous income tax payments refunded.

Completing your 2020 accounts and understanding your current financial position will be crucial in the coming months.

It will enhance your decision making as you look for tax relief or explore potential investments that arise under the above tax measures.

Feel free to give us a call at any time.