The year 2020 and the world’s current economic status has taken a battering with the outbreak of COVID-19. With governments racing to create relief and incentive schemes for local businesses, the purpose of this article is to simply outline all the key tax changes and support schemes that have been introduced by the government of New Zealand to help local businesses mitigate the impact of COVID-19.
Major Tax Changes
1. Reintroducing Depreciation on Commercial & Industrial Buildings
All depreciation deductions will be reintroduced for new and existing industrial and commercial buildings, including hotels and motels. There is no application process as the increased deduction will be available as part of normal tax filing processes. For more information click here.
2. Immediate Deductions on Low Value Assets
Businesses will be able to deduct the full cost of more low-value assets in the year they were purchased, rather than having to spread the cost over the life of the asset. Currently, taxpayers are able to claim immediate deductions on the purchase of assets valued at lesser than $500. The threshold for this will now be increased to include assets that cost up to $5000 (for the 2020/21 income year).
The temporary increase in the threshold, is designed to incentivise businesses to bring forward investments to encourage spending. The threshold is being permanently increased to $1,000 (from 2021/22). For more information click here.
3. Change to Provisional Tax Threshold
The government has increased the threshold for having to pay provisional tax from $2,500 to $5,000 for the 2020/2021 financial year only. For more information click here.
4. Writing Off Interest On Some Late Payment Tax
The IRD has been given the power to waive interest on late tax payments for businesses who’ve had their ability to pay their taxes on time significantly affected by the Covid-19 outbreak. The relief will apply to interest on all tax payments (including PAYE & GST) due on or after the 14th of February, 2020. For more information click here.
5. Change to Carrying Forward of Tax Losses
The government has introduced a ‘same or similar business’ test, which means a business could carry forward losses. To meet the test, the business must continue in the same or a similar way it did before ownership changed. This test is modelled on Australia’s rules.
Some companies will be looking to raise capital to keep afloat now and to recover in the future. Raising capital may result in a change to the existing shareholder structure. Relaxing the rules will ensure companies in this position could carry losses forward to offset income when they return to profit. A bill will be introduced in the second half of 2020 after consultation with tax advisors, and will apply for the 2020-21 and later income years.
6. The Temporary Loss Carry Back Scheme
Businesses that are expecting to make a loss in 2019/20 or the 2020/21 financial year will be able to estimate the loss and use it offset profits in the past year. The scheme introduces the concept of offset years, which are the pair of years affected by the carry-back. The first year is named as the taxable income year and the second as the net loss year. For more information click here.
Simply put, this means that they can carry their losses back a year. This will allow the IRD to refund some or all of the tax paid for the year in which the business was in profit. For more information click here.
Business Support Schemes
A new Resurgence Wage Subsidy Scheme payment has been announced by the government for employers and self-employed people who have been impacted by the recent resurgence of COVID-19.
All New Zealand employers who have had or expect to have a drop in their revenues of at least 40% due to the resurgence of COVID-19 may apply for the scheme. Businesses must show a drop of at least 40% in their revenues for a 14 day period between the 12th of August to the 10th of September, compared to a similar period last year. Application dates for the scheme are open from 1pm on the 21st of August until the 3rd of September 2020. For more information on eligibility criteria and how you can apply, please click here.
The small-business cash-flow scheme (SBCS) will provide interest free loans for a year to small businesses which have been impacted by the COVID-19 to help support their cash-flow needs and fixed costs as well. The scheme will provide assistance of up to $100,000 to firms employing 50 or fewer full time employees.
The scheme will provide $10,000 to every firm, and an additional $1,800 per equivalent full-time employee. To further encourage businesses the loans will be interest free if they’re paid back within a year. If the loan amount cannot be repaid within a year, then a 3% interest fee will be charged for a maximum period of five years. Repayments are not required for the first two years.
3. Business Finance Guarantee Loan Scheme
The scheme will include a limit of $500,000 per loan and will apply to firms with a turnover of between $250,000 and $80 million per annum. The loans will be for a maximum of three years and expected to be provided by the banks at competitive, transparent rates. The scheme is also only available to financially solvent firms (i.e. firms whose assets are greater than their liabilities).
As a New Zealand small business owner if you would like to apply for any of the schemes or would like us to help you with issues your business might be facing, please contact us on firstname.lastname@example.org or call us on +64-9-972-2236
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