The New Zealand Government yesterday announced further business support measures, largely aimed at SME’s.
Nexia New Zealand's Tax Director, Maggie Jaques, outlines the latest proposed changes below:
- A one year temporary tax loss carry back scheme (so businesses can receive a refund of 2020 tax paid if expecting a loss in the 2021 year). This temporary scheme is all about getting cash to struggling businesses in the short term. It will allow businesses to estimate their expected loss and offset this estimate against the 2020 tax year’s income. Legislation is being rushed through (draft legislation expected 27th April 2020) in time for the 7th May 2020 third instalment of provisional tax due.
- A permanent tax loss carry back scheme for the 2022 tax year and beyond. The Government will begin consultation on the proposed scheme in the second half of 2020 for a permanent ongoing scheme which will allow losses made in future tax years to be offset against earlier years where a profit has been made. We won’t know the details of the proposed scheme, such as how far businesses can go back to offset their losses and whether there will be a cap on refunds, until draft legislation is released (expected by March 2021). We will keep you updated as new information comes to light.
- Relaxation of tax loss shareholder continuity rules to enable easier access to capital. The Government is proposing to relax the current continuity of shareholding test (minimum of 49% from when losses arose until the business starts making a profit) in favour of a “same or similar business” test. This means that a company could keep its carried forward losses if additional shareholders were brought in, provided the company continued to carry on the same or a similar business. Australia has a similar test for companies carrying forward losses and the rules are expected to be based on this. Legislation won’t be released until March 2021 but it will be retrospective to the start of the 2021 year.
- Additional flexibility/IRD discretion to modify statutory deadlines such as extending due dates for tax return filing and payment of provisional and terminal tax for an 18 month period. Currently, IRD is unable to modify the due dates without legislative change, the additional flexibility afforded to IRD will enable it to move more quickly and make the changes required without legislative change.
- Measures to support commercial landlords and tenants in the form of extending statutory timelines so defaults/breaches have more time to be remedied. Under the proposed rules commercial landlords will not be able to cancel leases until 30 working days of the tenant being in arrears have passed instead of the current 10 working days. Likewise, banks and lenders will not be able to exercise mortgagee rights for 40 working days instead of the current 20 working days (the timeframe has also been extended for mortgaged goods from 10 to 20 working days).
- Additional $25M for business consultancy funding via the Regional Partner Network to allow more businesses to access business continuity, HR, accounting and other business support. This is a positive move as it enables more businesses to take a pro-active approach to dealing with the impact of the COVID-19 disruption on their business. Nexia New Zealand are registered as a service provider with the Regional Partner Network, so you may be able to access additional support from us via this scheme.
A large portion of the Government’s latest support measures will be administered via the tax system. For this reason, it will be important to understand the detail of the proposals (as and when they are released) as with anything tax related, the devil is truly in the detail.
We are supportive of the additional measures introduced by the Government to assist businesses in dealing with the economic fallout of the COVID-19 crisis, however we also caution that these measures will be complex and it will be important to establish whether your circumstances fit within the proposals.
By way of example, the temporary tax loss carry back scheme will require you to estimate or forecast a loss for the 2021 tax year in order to be able to offset this against the 2020 year profit and potentially receive a refund of provisional tax paid. Given that many businesses are less than a month into the 2021 tax year and also that we have no certainty as to what will happen in the next few months (globally as well as nationally) it will be extremely difficult to estimate with certainty the potential result for the 2021 tax year. The risk of getting this wrong may mean additional use of money interest charges if you have had too much 2020 provisional tax refunded (although we acknowledge this could change in further announcements).
Nexia NZ are planning on bringing you another YouTube Webinar shortly after 27th April 2020 when draft legislation has been released, as we should have a clear idea of who is eligible and what will be required to take advantage of the tax loss carry back scheme.
If you would like to discuss how these changes may apply to your business, please contact us, our team are here to assist you or offer advice.