Since 2020, measures to help support businesses adversely affected by COVID-19 have been introduced in several waves. Initially the intention was to boost confidence and help businesses get through the crisis. Subsequently it became clear that support through a recovery period would be needed, as well as ‘just in case’ measures for possible rapid response to higher Alert levels for some regions.
The original package included:
- A tax loss carry-back scheme
- Greater flexibility for taxpayers in respect of statutory tax deadlines
- Measures to support commercial tenants and landlords, and
- Proposed changes to the tax loss continuity rules
- Further business consultancy support.
Further developments included wage and leave subsidies, resurgence support, loan products and further tax relief around depreciation, bad debt write-offs and tax losses for research and development. Some support measures were extended or adjusted, sometimes repeatedly. You might be forgiven for being a bit confused about where we’re up to with all of them so we put together this update.
It’s important to keep current. Let us know if you’re worried about not being able to pay your tax on time, if your cashflow is dangerously low, or if you need access to capital. And if you’ve taken advantage of tax relief or business support measures, make sure your records are in good shape to support your tax return.
Consultancy support – Businesses had access to free professional consultancy services through Regional Business Partners (RBP) with tailored specialist support for business continuity planning, finance and cash flow management, HR and staffing issues. COVID-19 Business Advisory Funding has been fully allocated. The RBP can advise on what other support is available.
Debt hibernation – The business debt hibernation scheme helps businesses manage their existing debts until they can start trading normally again. It allows qualifying businesses to defer debt repayments by up to 7 months. The scheme has been extended to 31 October 2021.
Depreciation – From the 2020/21 income year onwards, depreciation is allowable for commercial and industrial buildings. For a limited period, the low-value asset threshold for depreciation increased from $500 to $5,000. For items that fall below the threshold, the depreciation loss is the item’s cost. Above the threshold, items must be depreciated using the diminishing value or straight-line method. The increase allowed the immediate expensing of assets that cost less than $5,000 and that were purchased between 17 March 2020 and 16 March 2021. For assets purchased on or after 17 March 2021, the threshold permanently increases from $500 to $1,000.
Insolvency support – The introduction of a ‘safe harbour’ from sections 135 and 136 of the Companies Act 1993 provided relief to company directors facing significant liquidity problems because of COVID-19. This temporary provision expired on 30 September 2020 but may be reinstated by regulation if required.
Leave support – Leave Support is available for employers, including the self-employed, to help pay employees who need to self-isolate and can’t work from home. A new short-term absence payment has been added to cover eligible workers needing to stay at home while awaiting COVID-19 test results. This also covers parents, caregivers, household members or secondary contacts of the eligible worker awaiting test results.
Loan products – The Business Finance Guarantee Scheme supports lenders by the government taking on the default risk of up to 80% of the loan. Participating lenders can provide new loans, increased limits to existing loans or a revolving credit facility to eligible businesses. The scheme is being extended to June 2021 with additional availability and flexibility. Be aware that the Government guarantee does not limit your business’ liability for the debt. If your business defaults on a scheme loan, the lender will follow its normal processes to recover the debt.
The Small Business Cashflow Loan Scheme grants eligible businesses an interest free loan (up to a capped maximum), if they repay it within two years. The scheme has been extended, broadening eligibility, and extending its availability to 2023. Businesses or organisations that have fully repaid their loan before the end of 2023 can re-borrow.
Loss carry-back – A temporary tax loss carry-back scheme, limited to a 3-year window, means losses in the 2020- or 2021-income years can be used to offset profits made the year immediately before. If you want to use this option, you need to be eligible and let Inland Revenue know you want to elect into the scheme. If you’re expecting a tax loss for the year ended 31 March 2021, you might be eligible for a refund of provisional tax previously paid for the 2020 year. There has been discussion about introducing a permanent scheme but there’s no further news on this yet.
Loss continuity rules – Loss continuity rules allow tax losses to be carried forward. Up till now, if a company had more than a 51% change in ownership it couldn’t keep its tax losses. As raising capital may result in a change to the existing shareholder structure, companies wanting help need flexibility to access capital and to carry losses forward to offset income when they return to profit. Proposed new rules are expected to apply for the 2020/21 and later income years with a “same or similar business” test, meaning the business must continue in the same or a similar way it did before ownership changed. Inland Revenue will be alert to prevent loss trading.
Provisional tax – The RIT threshold for provisional tax increased from $2,500 to $5,000 from the 2020/21 tax year. This allows small businesses to retain cash for longer and reduces the number of provisional tax taxpayers.If you are a building owner, you can adjust provisional tax payments in anticipation of additional deductions available as depreciation for commercial and industrial buildings was reintroduced from the 2020/21 income year. If your business is affected by COVID-19 and you need to re-estimate your provisional tax as your income falls short of the estimate and provisional tax has been overpaid, it may be possible to arrange early refunds.
Research and Development (R&D) – Start-up companies are able to cash-out their tax losses arising from eligible R&D expenditure and avoid carrying the losses through to the next income year. The rules around R&D expenditure are detailed and eligible R&D expenditure requires approval from Inland Revenue. If you want to claim under these rules, you need to look at this sooner rather than later, and have good records of such expenditure.
Resurgence support – A new resurgence support payment (RSP) is available from 23 February 2021 to help businesses directly affected when there is a move to Alert Level 2 or above for a week or more. This is especially relevant to sectors like hospitality and events, who face particular disruption as Alert Levels change. Businesses can apply to receive the lesser of:
- $1,500 plus $400 per fulltime-equivalent (FTE) employee, up to a maximum of 50 FTEs, or
- Four times (4x) the actual revenue drop experienced by the applicant.Eligible businesses must have experienced at least a 30% drop in revenue or capital-raising ability over a 7-day period after the increased alert level. They must have been in business for at least 6 months to apply.
Short-term absence payment – See Leave support.
Tax deadlines – Inland Revenue has discretion to grant extensions to filing datesfor some income tax returns. Extensions can’t be granted for GST and PAYE returns, but late filing penalties may be remitted. Under limited circumstances, late payment penalties may also be remitted.
Tax Debt – If you are unable to pay tax by the due date, Inland Revenue has discretion to write-off penalties and interest. Contact them to indicate when tax can be paid, or request instalment arrangements. You may be eligible for a UOMI write off.
Tenants and landlords – Temporary law changes were made to support tenants unable to pay rent and landlords unable to meet mortgage payments. These made it easier to retain lease arrangements and get back to business as usual after the pandemic, giving parties more time to fulfil their payment obligations or negotiate temporary changes to agreements or payment plans. These temporary changes have largely ended.
Wage subsidy – The wage subsidy schemes ensured employers could keep paying their employees, and workers continued to receive income, and stayed connected to their employer, even if unable to work their normal hours. The original scheme closed in June 2020. An 8-week extension was available nationally after the original scheme closed. Applications for it closed in September 2020. A 2-week Resurgence Wage Subsidy payment was available for businesses affected by COVID-19 resurgence. Applications for this closed on 3 September 2020. The Wage Subsidy scheme will be in place if there is an escalation to Alert Levels 3 or 4 anywhere in New Zealand, for 7 days or more, with the lockdown announcements on 28 February 2021 being an example.
Support will be provided in two-weekly payments and total support will match the duration at Alert Level 3 or 4 rounded to the nearest fortnight.The wage subsidy is considered excluded income to businesses and is also GST exempt. When passed on as wages, businesses don’t get a deduction for income tax purposes. Keep comprehensive records of wage subsidies received and passed on to employees, as well as any subsidies your business subsequently repaid, to be prepared for any adjustments required in your tax return.
Working from home (WFH) costs and reimbursements – The timeframe for tax-exempt reimbursement payments made by employers to employees for WFH now extends from 17 March 2020 to 30 September 2021. Make sure your records have enough detail to show:
- What period these payments relate to
- Payments comply with requirements for qualifying payments to be treated as exempt income
- Where some payments are exempt and others taxable and where some portions of a payment are exempt but others are taxableNote that:
- For telecommunications devices/plans, staff reimbursements are exempt income up to $5 per week. If reimbursement is above this amount, the exempt amount is 25% if the device/plan is used partly, 75% if used mainly, or 100% if used exclusively for employment purposes
- WFH payments claimed between 17 March 2020 and 17 March 2021 allow an additional $15 per week, per employee, to be exempt income for other WFH expenditure
- Payments may be tax exempt for use of furniture or equipment when WFH to reimburse depreciation on the item. The payment will typically be for the cost of the asset and the payment will still be deductible to the employer. Note the $5,000 low-value asset threshold applying between 17 March 2020 to 17 March 2021 applies here.
Write-offs – Ordinarily, a bad debt must be written off by the end of the tax year. For the 2020 year, the timeframe to write off a bad debt and be able to claim a deduction for that income year was extended to 30 June 2020. This is subject to conditions.
Make sure your records for the 2020 and 2021 years reflect any write-offs for bad debts for the relevant period and have sufficient detail to justify the write-off.