The Government has announced further support measures aimed to help small and medium-sized enterprises (SMEs) manage the impacts of COVID-19. These include a tax loss carry-back scheme, changes to the tax loss continuity rules and allowing Inland Revenue to change due dates.
Legislation will be introduced on 27 April to enact these tax measures and will apply retrospectively once the bill is passed.
These measures should provide additional cashflow relief to those SMEs struggling to meet their non-wage fixed costs (such as rent, interest and insurance) and are unable to take on additional debt. This will prevent otherwise viable businesses having to close permanently.
Tax loss carry-back scheme
The $3.1 billion approved scheme will provide cash to businesses that are, or anticipate being, in loss. This means a projected loss in the current financial year can be offset against the tax paid on a profit from last year. A cash refund will be received for the tax paid in the previous profitable year.
Tax loss continuity rule changes
The Government has proposed loosening the tax loss continuity rules to make it easier for firms to raise new capital. Raising capital may result in a change to the existing shareholder structure. Currently, if a business has more than a 51% change in ownership it cannot keep its tax losses. Relaxing the rules will ensure businesses in this position could carry losses forward to offset income when they return to profit.
Details around this are still being finalised. The new rules would apply for the 2020-21 and later income years.
Flexibility for businesses to meet their tax obligations
Inland Revenue will be given temporary power to extend due dates, timeframes or modify procedural requirements for businesses and individuals who are impacted by COVID-19. This could include extending deadlines for filing tax returns and paying provisional and terminal tax.
SMEs make a significant contribution to the New Zealand economy and account for 97% of all New Zealand businesses. The latest announced tax changes, together with the current range of support measures such as the Wage Subsidy Scheme, the Business Finance Guarantee Scheme and business tax changes will help boost cashflow and keep businesses in the SME sector afloat.
Recent temporary changes to the Companies Act, which includes enabling businesses to place existing debts into hibernation for six months, will also help businesses facing insolvency to remain viable.
The Government has indicated work is underway on further support for businesses and households as the impacts of COVID 19 become clearer.
These new tax measures create opportunities for businesses to minimise their outgoings so they can efficiently utilise their cash reserves. With upcoming tax filing and payment obligations to be fulfilled such as payroll taxes, provisional taxes and GST, we recommend you seek professional advice to consider implementing the following options:
- Liaising with Inland Revenue on delaying or deferring filing of the tax returns and/or tax payments.
- Undertaking projections for the 2020/21 financial year to determine any anticipated tax losses that may be incurred, which may be used to offset against the taxable income for the 2019/20 financial year. This in turn will minimise your 2019/20 tax liability and may potentially result in a refund of any excess taxes paid.
- Preparing the financial statements for the 2019/20 financial year to determine if any tax losses incurred can potentially be offset against the taxable profit for 2018/19 financial year, resulting in a refund of any excess tax paid.
We’re here for you
We continue to support our clients through this challenging period with key business and tax advice to answer your business-related questions and guide you through the COVID-19 financial support measures. For the latest COVID-19 updates, visit our Resource Page.
Should you need any additional support, please contact your local William Buck advisor – we’re here to help.