Disclaimer: This article is current as at 16 April 2020.
In the sea of changes and new initiatives announced over the past few weeks as a result of COVID-19, it’s difficult to pinpoint what options are available to you and where you should be directing your attention. As your trusted Business Advisors, it is our job to understand the holistic effect of various changes, how they apply to your individual circumstances and to advise you as to the best way forward. With so many legislative changes and further detail still to be provided, the goalpost is continually moving and we can’t stress enough how important it is that you are talking to us before launching into any of the available options as the long-term effects of various relief packages may, in fact, be hidden. Our team of Business Advisors are experts in their field and our priority is to ensure that our clients are well-informed and able to make decisive decisions to ensure long-term business success. The actions you take now will determine what success looks like in the future.
We have put together a summary highlighting some of the key points of initiatives or schemes that have been put forward by the Government and we encourage your next step to be to reach out to one of our trusted Business Advisors to bounce ideas around how they apply to your individual circumstances. You will see throughout this article we have referred to previous Bean Blogs that we have released, as well as links to sites that can be trusted as verified sources. At this time, there is a lot of information out there, especially on non-verified websites and social media sites. We only communicate information from trusted and verified websites (such as Inland Revenue or the Beehive for example).
In this article we will provide a high-level summary over the below changes:
Changes announced in April 2020 (current as at the date of publication)
Changes announced in April 2020 (current as at the date of publication)
On the 15th of April 2020, the Government announced a suite of new measures to provide relief for businesses during the COVID-19 pandemic.
These include:
Greater flexibility for taxpayers in respect of statutory tax deadlines
The Inland Revenue would be given discretion to temporarily change due dates for filing returns and making payments.
The discretionary power of the Inland Revenue would be time-limited (18 months).
Only available for businesses affected by COVID-19.
Changes to the tax loss continuity rules
Currently, if a company has more than 51% change in ownership it cannot keep its tax losses. Proposed changes suggest moving from a continuity of ownership test to a “same or similar” business test which means a business could carry forward losses if it continues in the same or similar way it did before ownership changed.
Would apply from the 2020/21 tax year.
Detailed design and consultation in the second half of 2020.
A tax loss carry-back scheme
A loss carry-back mechanism enables a business to offset a loss in a particular tax year against a profit in a previous year, and receive a refund of the tax paid in the previous profitable year.
A temporary scheme would allow businesses expecting to make a loss in either the 2019/20 year or the 2020/21 year to be able to estimate the loss and use it to offset profits in the past year. In other words, they could carry the loss back one year.
This change means businesses could get a refund for some or all of the tax already paid for the year they were in profit. It means businesses could cash out all or some of their losses in 2019/20 or 2020/21. Without this change, businesses would have to carry forward any loss to a year when they make a profit.
Taxpayers do not need to rush to re-estimate their provisional tax before the 7th of 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.
A permanent loss carry-back scheme has been proposed applying from the 2021/22 income year.
Measures to support commercial tenants and landlords
These include an extension of the timeframes required before landlords can cancel leases and allows mortgagees to exercise their rights to sale or repossession.
These changes would still allow landlords to cancel leases and mortgagees to exercise their powers during the period that an epidemic notice is in force, but would allow for more time for breaches or defaults to be remedied.
Further business consultancy support
Businesses will be able to access tailored specialist support for a range of issues they may be currently facing, including business continuity planning, finance, and cash flow management, HR and staffing issues, and potentially any sector-specific issues.
As a result of the COVID-19 pandemic, the Government announced on the 3rd of April 2020 that there would be changes specifically relating to Company Directors, of which legislation is still to be drafted and the timing of implementation is still to be determined.
These proposals include the below:
Safe Harbour
For the next 6 months, directors who continue trading or who make decisions to take on new obligations would have a “safe harbour” from potential claims under sections 135 (“Reckless Trading”) and 136 (“Duty in Relation to Obligations”) of the Act provided:
in their opinion, acting in good faith, the company is or is likely to face significant liquidity problems in the next 6 months as a result of COVID-19 on them or their creditors;
the company was able to pay its debts as they fell due on 31 December 2019; and
they consider in good faith that it is more likely than not that the company will be able to pay its debts as they fall due within 18 months. This may be as a result of improved trading conditions or their genuine belief that they will be able to reach an accommodation with their creditors.
Introduction of a Business Debt Hibernation regime
This would encourage directors to actively speak to their creditors with a view to putting a simple proposal together to place the business into hibernation.
It would allow directors to remain in control of their companies, rather than hand over control to an insolvency practitioner.
It seeks to provide certainty to creditors that payments they receive from a company in Business Debt Hibernation will not later be challenged by a liquidator seeking to unwind transactions if the company is placed into liquidation.
The process of going into Business Debt Hibernation is intended to be quick, simple and flexible so that directors can commence the process themselves.
Other changes include:
Bringing forward an insolvency-related reform under the voidable transactions regime to reduce the period of vulnerability for voidable transactions from two years to six months where the debtor company and the creditor are unrelated parties.
Deferring the introduction of licensing of insolvency practitioners for up to 12 months.
Allowing the use of electronic signatures where necessary due to COVID-19 restrictions.
Giving Registrars the power to loosen time frames around certain corporate governance matters such as the holding of AGMs and the filing of annual returns, and relaxing deadlines to carry out certain functions such as processing applications to reserve company names.
Giving entities freedom to temporarily not comply with obligations in their constitutions or rules if COVID-19 prevents them doing so until they are reasonably able to comply.
Allowing entities to use electronic forms of communication, including electronic meetings, even if their constitutions prohibit them from doing so.
Changes announced in March 2020 (current as at the date of publication)
When the Government initially announced financial measures to help support New Zealand Businesses, we released a blog detailing such proposals:
Since our publication, additional information has been announced. In the below, we have summarised the high-level points (based on information available at this time of publication), as well as provided links to verifiable sites for further information.
Supports employers adversely affected by COVID-19, so that they can continue to pay their employees.
Supports employees by enabling them to continue to receive an income, even if they are unable to work.
There is now a search function available to find employers who have received the COVID-19 Wage Subsidy
If your business needs help to pay essential workers who can’t work due to COVID-19 Public Health guidance, it could be eligible for the COVID-19 Essential Workers Leave Support. This subsidises eligible businesses and allows them to pay workers who because of Ministry of Health guidelines are recommended to stay at home, but they can’t work from home.
The scheme offers the same rates as the Wage Subsidy Scheme of $585.80 per week full-time workers and $350.00 per week for part-time workers.
Reintroduction of depreciation on commercial and industrial buildings.
Reintroduced from 1 April 2020.
Does not apply to residential buildings.
Applicable rates: 2% for the diminishing value method, 1.5% for the straight-line method.
Immediate deductions for low-value assets.
Threshold temporarily increases from $500 to $5,000 (effective from 17 March 2020 – 16 March 2021).
Threshold permanently increases to $1,000 (Effective from 17 March 2021).
Fewer small businesses having to pay provisional tax.
Increase in the provisional tax threshold from Residual Income Tax “RIT” of $2,500 to RIT of $5,000.
This is a permanent change from the start of the 2020/21 income year, which for most taxpayers will mean 1 April 2020.
Use of Money Interest Remission.
Inland Revenue can remit interest on late payment if the taxpayer’s ability to make payment was significantly adversely affected by the COVID-19 outbreak (effective for payments due on or after 14 February 2020).
Research & Development Tax Credit refundability was brought forward to the 2019-20 tax year.
Amendments to Inland Revenue’s ability to share information with other Government Departments to assist the efficient and effective delivery of the Government’s COVID-19 response.
Removal of the hours test from the In-Work Tax Credit from 1 July 2020 aimed at assisting those working variable hours.
Working for Families Tax Credit entitlement was extended to include emergency benefit recipients who are on a temporary visa.
GST-registered businesses deemed not liable for GST on COVID-19 related payments.
The Winter Energy Payment was doubled.
Small and medium-sized businesses with an annual revenue of between $250,000 and $80 million may be eligible for new loans (including increases to existing limits) through participating approved banks as a response to difficulties caused by COVID-19.
As we approach changes to COVID-19 alert levels, business owners need to be thinking about how each of the alert levels will impact their businesses. Changes need to be made now to make sure opportunities are seized as we move through the different levels. COVID-19 has emphasised the need to automate processes, get online channels working effectively and make sure business contingency plans are in place. In the midst of all the uncertainty that COVID-19 imposes, those businesses with an ability to be innovative and agile are coming out on top. Talk to us about how we can help you stay ahead of the curve.
