COVID-19 Update: Further Tax Changes Announced

Business AdvisoryGovernmentTax

17 April 2020

On 15 April 2020 the New Zealand Government announced new measures aimed at providing relief for businesses. Below is a summary of these measures:

Greater tax deadline flexibility

Inland Revenue are to be given discretion to provide extensions to due dates and timeframes, or to modify procedural requirements set out in tax legislation. Examples provided by the Government include extending deadlines for filing tax returns and paying provisional and terminal tax. This ability will be time-limited for a period of 18 months and will apply to businesses that have been affected by COVID-19.

It appears this discretion will apply on a taxpayer-by-taxpayer basis rather a blank change for all taxpayers. Draft legislation has not been released yet, and we have little guidance from Inland Revenue on how it will apply this discretion. However, it seems similar rules as those that apply to the use of money interest write off will apply. That is a need to show the taxpayer’s ability to meet their tax obligations has been adversely affected by COVID-19.

Changes to the loss continuity rules

The Government is proposing to introduce a “same or similar” business test to supplement the shareholder continuity rules for carrying forward tax losses. Under the “same or similar” test, a company would be able to carry forward losses despite ownership changes provided that the company carries on the same or similar kind of business to that it carried on when the losses were generated.

This would allow companies to raise capital without the concern that their losses would be forfeited by a breach in shareholding continuity. The changes would apply from the 2020-21 year. Inland Revenue is consulting on this change and legislation is not expected until March 2021 despite the rules applying to the current tax year.

Tax loss carry-back scheme

A temporary tax loss carry-back mechanism will be introduced to allow a company to offset a current year tax loss against a prior year profit and receive a refund of the tax paid in that previous year. This will apply to tax losses incurred in the 2019-20 or 2020-21, income years.

A company incurring a loss or forecasting a loss in either of these years will be able to elect to carry in back to an earlier income year. Where the tax return for the relevant loss year has not been filed, the company will be able to will an estimate of its loss for the year (similar to estimating provisional tax) and elect to offset that estimated loss against prior year income to receive a refund. Should the actual loss for the year be less than the estimated loss, the company will need to repay the excess tax refunded and use of money interest will apply.

This change means that where losses are being forecasted for 2020-21, there is the potential to reduce 7 May provisional tax payments by filing a loss estimate and carrying it back to the 2019-20 income year.

An amendment to taxation legislation for this temporary loss carry back provision will be introduced to Parliament on 27 April. Inland Revenue is working on a permanent amendment of the loss carry back provision, which is intended to be included in a tax bill in March 2021 and will apply to future income years.

If you require assistance preparing forecasts for your company or are forecasting losses and require advice on how this loss carry back should be recorded in your businesses cashflows, talk to a Findex adviser today.

Findex has developed a Government Stimulus Health Check and free Business Wellbeing Toolkit to help businesses manage potential risks and take full advantage of eligible stimulus assistance. Book your Health Check here.


Findex NZ Limited trading as Findex

While all reasonable care is taken in the preparation of the material in this communication, to the extent allowed by legislation Findex NZ Limited accept no liability whatsoever for reliance on it. All opinions, conclusions, forecasts or recommendations are reasonably held at the time of compilation but are subject to change without notice. Findex NZ Limited assumes no obligation to update this material after it has been issued. You should seek professional advice before acting on any material.

This document contains general information and is also not intended to constitute legal or taxation advice. If you need legal or taxation advice, we recommend you speak to a qualified adviser.

April 2020

Author: Stephen Richards

Stephen began his career in Tax advisory with a Findex predecessor firm in 1999. He subsequently worked as a commercial and property lawyer, and then as part of the tax advisory team of a Big 4 Firm, before re-joining the Findex tax advisory team in 2014. Stephen advises clients ranging from individuals and family owned businesses through to large corporates and listed companies on all aspects of New Zealand tax law. Stephen has specialist experience in advising on business structures, cross-border and international tax structures, taxation of land transactions, managing complex tax disputes and obtaining binding rulings. He also has an interest in tax policy and tax law reform and can assist clients submitting on and lobbying in relation to the impact of tax changes on their business. With over 20 years tax advisory experience Stephen is a sought-after speaker on tax topics, including presenting training courses for CCH, CAANZ, and TEO Training. Stephen lectures in taxation practice at the University of Otago.