Well hey there. Another week and more changes.
The government recognizes the huge impact COVID-19 is having on small business survival and is moving swiftly and in an ongoing manner. So we will do our best to keep you posted as details come in on any changes announced and how they relate to you.
Please note that the government announcements this week are at proposal stage. So we don’t know exactly how everything will work and may not have all the answers just yet. Even Jacinda probably doesn’t have all the answers just yet and unfortunately we lost our direct number to her so can’t Facetime/Zoom/Google hangout/snap chat her. But if anyone does have her number……
The changes the government announced this week to help small business and taxpayers include:
- Greater flexibility for taxpayers in respect of deadlines
- Changes to tax loss continuity rules
- Tax loss carry back scheme
- Measures to support commercial tenants and landlords
- Access to free business consultancy support
GREATER FLEXIBILITY FOR TAXPAYERS IN RESPECT OF DEADLINES
New legislation is being drafted to give the IRD discretionary power to extend deadlines to file and pay tax. It is anticipated that there will be extensions of no longer than 18 months. So what that means is that if you are struggling to get tax returns in on time or make payment there may be extensions granted by IRD without any penalties or use of money interest being charged. You can ask directly or you could get your friendly accountants (us!) to ask on your behalf. It may also mean that IRD temporarily changes the dates for payment – which may mean that the standard provisional tax dates and terminal tax dates change in the current year.
From what we have read this seems to relate to income tax only. We don’t believe this relates to other tax types such as PAYE and GST. So if you are struggling around these taxes you should contact us or IRD directly to make an arrangement.
CHANGES TO TAX LOSS CONTINUITY RULES
The current tax loss continuity rules state that if a Company has more than a 51% change in ownership, then any tax losses incurred to date are forfeited. So for instance, under the current tax loss continuity rules, if a company had a tax loss of say $50,000 in Year 1 and then a profit of $70,000 in year 2 – then the loss in Year 1 would be offset against the Year 2 profit meaning that the Company would only have taxable income of $20,000 in Year 2 ($70,000 – $50,000). However if there was a change in shareholding of more than 51% in Year 2, the losses would be extinguished and you would therefore have to pay tax on $70,000 in Year 2. That’s a bit accounting 101 – but hopefully you follow.
Under the proposed changes to the tax loss continuity rules, if you were to have a major change in shareholding the losses will stay intact. Nice of IRD eh? Under this proposal a same or similar business test would be applied. So that means that the business would have to be conducting the same kind of business activity going forward to keep the losses.
This change is designed to make it easier to get capital injections into your business. Under the proposed change it makes it more desirable for investors to inject funds into your Company because they will get the benefit of losses that your business has accrued.
The changes to the tax continuity rules are not expected to be put in place to the second half of the 2020 year.
TAX LOSS CARRY BACK SCHEME
This is a curly one. What the government is proposing here is that you can offset income tax losses in the 2020 year and/or expected losses for the 2021 year against income in the previous year (the year end 31 March 2019 for the 2020 year and the year end 31 March 2020 for the 2021 year).
So if you end up with a loss for the 2020 year you can offset that against tax paid in the 2019 year and access a refund. If you expect a loss for the 2021 year you would need to make reasonable projections (we can help with that) but you could offset that against 2020 tax which may mean that your provisional tax due 7 May could be reduced or you may even be entitled to a refund for the provisional tax you have paid for the 2020 year.
The IRD are currently consulting with tax advisors on how this will work. The change, along with guidance on how it will be administered is expected to be introduced in the week beginning 27 April.
We are not sure exactly how this will work just yet. But note this only applies to businesses that are making tax losses. If you have experienced or will experience a decline of income but are still making profits this won’t apply to you. Also – you don’t need to rush to re-estimate tax before 7 May because you will be able to re-estimate after that date.
MEASURES TO SUPPORT COMMERCIAL LANDLORDS AND TENANTS
The Government haven’t been super helpful on this. The proposed changes are relating to extending the time frames required before landlords can cancel leases and mortgagees can exercise rights to sale and repossession of property. The changes will allow more time for breaches or defaults to be remedied.
This is a legal matter rather than an accounting matter so we can’t help too much on this. But if you have questions regarding the measures of support for commercial tenants and landlords you can ask us and we can connect you with legal teams in our business community.
ACCESS TO FREE BUSINESS CONSULTANCY SUPPORT
Businesses will be able to access free support on a range of issues such as business continuity, planning, financial and cashflow management, HR and staffing. This includes support from such organisations as the Regional Business Partner Network who will be scaling up their advisory services. We can give you more information on this as it comes to hand.
On the business consultancy note please contact us if you need help with any of the above issues. We have a community that can help. Number Up can help with business and financial planning or Scott can even just have a chat with you about anything (keep it clean though). We have new analytical software than can help with budgeting and tracking business performance. We are happy to offer a 1 hour free consultation and can discuss how we can assist. We will keep assistance affordable or at least give you some direction.
Ok so you made it to the end of another riveting newsletter and now you want to reward yourself with a top notch piece of humour.
Q: Why did the chicken cross the playground?
A: To get to the other slide.
I’m sensing disgust. Better go. Stay safe out there.