May 2020 #2 IRD late payment interest and penalty remission update
IRD now has the power to remit interest if a taxpayer's ability to make payment is significantly affected by the COVID-19 outbreak. Relevant points are:
• This is not an automatic remission.
• It applies to tax payments due on or after 14 February 2020.
• The remission is only available once the core tax has been paid in full.
• The IRD power to remit will be available up until 25 March 2022.
• Eligibility will be determined by whether income or revenue has reduced because of COVID-19.
• Applications must be made "as soon as practicable", which is considered to mean the taxpayer applies at the earliest opportunity and agrees to an arrangement that will see the outstanding tax paid at the earliest opportunity.
For pre existing debt prior to COVID-19, taxpayers who cannot meet their obligations under an existing arrangement can ask to renegotiate that installment arrangement. IRD will consider rearranging the installments, and they also have the power to write off debt due to serious hardship.
By the way, the IRD interest rate for late payment has been reduced to 7% from 8 May. Note that the rates we can obtain from Tax Management NZ are now less than 4%, so talk to us about managing your tax payments in the most efficient way.
MAY 2020 #1 Small Business Cashflow Scheme
The small business cashflow scheme is 100% backed by the government and aims to help enterprises meet their immediate cash flow needs and fixed costs. It comes after the business finance guarantee scheme, which the government launched in partnership with banks, has not met the needs of many businesses.
What's involved in the small business cashflow scheme?
The scheme will provide $10,000 to every business and an additional $1800 per equivalent full-time employee.
There is no interest if the loan is repaid within a year, after this time the interest rate will be 3%. The scheme has a maximum term of 5 years and repayments of the principal and interest are not required in the first two years.
Businesses will be able to apply to the IRD from 12th May, and you will apply through MyIR.
Eligibility will be the same as the wage subsidy scheme.
The scheme is for businesses with 50 or fewer employees.
Businesses must declare they are viable and that they will use the money for core business operating costs.
Changes to the Business Finance Guarantee Scheme
Finance Minister Grant Robertson also announced changes to the business finance guarantee scheme put in place in partnership with banks. Two of the changes announced are:
· removing the government requirement for a general security agreement
removing the requirement for businesses to have drawn down on existing loan facilities before they can apply.
Let's wait and see what the details are before jumping in, but it seems on the face of it, if you're business has been affected by the COVID-19 response and you're eligible, then when this is available to make use of it. We expect to have more details at the end of the week.
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.
Tax loss carry-back scheme
This enables a business to offset a loss in a particular tax year against a 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 either 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."
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 set out the detail. 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. Existing helplines often used by businesses, such as those operated by the Employers and Manufacturers Association and the Canterbury Chamber of Employment and Commerce, will also be extended.
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
The government has announced a business continuity package in response to Covid-19. The goal is to cushion the blow for businesses and workers and position for recovery. The most immediate opportunity will be to claim the wage subsidy if your business has already experienced a significant downturn in sales, and for some businesses this will be starting to bite now. This subsidy is not without hooks, so it's important to talk through your situation before you jump into this.
The $12.1 billion package includes:
$5.1 billion in wage subsidies- available for businesses that have had a 30 percent decline in revenue, compared to the same period last year. Eligible businesses will receive $585.50 per week for full-time staff, and $350 for part-time staff. (up to a total of $150,000 per business).
$2.8 billion increase to income support- an extra $25 per week for all main benefits (approx 350,000 families) and the 2020 winter energy payment will be doubled, affecting approximately 850,000 recipients.
$2.8 billion in business tax changes to free up cashflow- including a provisional tax threshold lift from $2,500 to $5,000, the reinstatement of some building depreciation and writing off interest on some late payment of tax.
$126m in COVID-19 leave payment scheme and self-isolation support- eligible businesses will receive the same rates as the wage subsidy for those who are unable to work because they are in self-isolation, sick with COVID-19 or caring for dependents. The subsidy is not eligible for those who can work from home.
$100m for redeployment- supporting worker redeployment programmes.
$600m initial aviation support package- (Air NZ will be on top of this)
A $500 million boost for health- for health staff, virus testing, medicines and face masks, extra intensive care capacity and equipment at hospitals, as well as more money for GPs.
Grant Robertson said they will be actively discussing working capital support for small and medium businesses and tailor-made support for larger and complex businesses.
We can talk you through the details on what you may be eligible for and ways to moderate the stress on your business.