16 April 2020
On 25 March 2020, the New Zealand Government introduced the COVID-19 Response (Taxation and Social Assistance Urgent Measures) Act to ameliorate the effects of COVID-19.
The Act includes changes to three key areas of New Zealand’s income tax laws – Tax Administration, Income Tax & GST, and Social Assistance Measures – which we set out in some detail below.
1. Tax administration
1.1 Enabling Inland Revenue to remit use of money interest for taxpayers affected by COVID-19.
The changes allow Inland Revenue to remit use of money interest if a person’s ability to make a tax payment on time is significantly adversely affected by an outbreak of COVID-19. This would include both where a person has been physically unable to make a payment on time, for example, because they have been quarantined, and where a person lacks the financial means to make a payment on time because of the economic impacts of COVID-19.
The discretion to remit interest only applies to interest that has accrued on tax payments due on or after 14 February 2020.
To remit interest the person must ask the Commissioner to remit the interest and the Commissioner must be satisfied the taxpayer has asked for the relief as soon as practicable and made the payment of tax as soon as practicable. Note: the interest will not be remitted until the core tax debt has been paid.
Inland Revenue is developing guidance on when a taxpayer would be considered eligible for interest to be remitted and this would be published following the Bill being enacted. Preliminary guidance is available at https://www.ird.govt.nz/covid-19/tax-relief/uomi
The Commissioner’s ability to remit interest will only apply for 24 months following the enactment date. However, this period would be able to be extended by an Order in Council.
Note: No special law change was made to enable people to apply for penalties to be remitted. The present law allows penalties for late filing, late payment and a range of other penalties to be remitted when the Commissioner of IR is satisfied that:
- The penalty arose as a result of an event or circumstance beyond the control of a person; and
- As a consequence of that event or circumstance the person has a reasonable justification or excuse for not furnishing the tax return or their employment income information, or not furnishing their employment income information in a prescribed electronic format, or not paying the tax on time; and
- The person corrected the failure to comply as soon as practicable.
An event or circumstance may include:
- An accident or a disaster; or
- Illness or emotional or mental distress.
An event or circumstance does not include:
- An act or omission of an agent of a taxpayer, unless the Commissioner is satisfied that the act or omission was caused by an event or circumstance beyond the control of the agent—
- that could not have been anticipated; and
- the effect of which could not have been avoided by compliance with accepted standards of business organisation and professional conduct; or
- A person’s financial position.
1.2 Allowing Inland Revenue to share information with other Government agencies to assist those agencies in their response to COVID-19.
The amendments allow Inland Revenue to share information with other government agencies to respond to the COVID-19 outbreak. The change is targeted, time limited, and only used when existing legislative provisions are not adequate to share information.
The other agencies Inland Revenue would share information about persons or entities with are Government departments, the New Zealand Police, ACC, and Kāinga Ora.
The information is only shared for the purpose of enabling those agencies to provide assistance to individuals and businesses, fulfil any obligation or function, or exercise any power in response to the COVID-19 outbreak. The information shared would not be available for use in administering other assistance not related to COVID-19.
The information that can be shared is both individual and non-individual information and may include, but is not limited to, identifying information, contact and location information, financial information, and family information. The provision also allows information to be shared to enable the government agency to undertake compliance activity related to that COVID-19 assistance.
An example of where the information could be provided is to assist in determining entitlement to any temporary income assistance package or the auditing of any assistance claims to counter fraud.
2. Income tax and GST
2.1 Restoring depreciation deductions for non-residential buildings.
A deduction for depreciation of buildings other than residential buildings will be allowed from the 2020–21 income year. It would apply to buildings owned at the beginning of that income year and going forward to newly acquired buildings and capital improvements made to existing buildings. The depreciation rate would be 2% declining value or 1.5% straight line. This is a permanent measure.
For buildings that were owned in the 2010–11 income year, the tax book value for the beginning of the 2020–21 income year would be:
- the adjusted tax book value at the end of the 2010–11 income year, less fit-out deductions taken under the section DB 65 transitional rule if applicable; plus
- non-deductible capital expenditure incurred with respect to the building from the end of the 2010–11 income year to the start of the 2020–21 income year.
For buildings acquired after the end of the 2010–11 income year, the opening tax book value for the 2020–21 income year would be:
- the cost of the building; plus
- non-deductible capital expenditure incurred with respect to the building from the time it was acquired until the beginning of the 2020–21 income year.
Straight line depreciation
If a taxpayer elects to use the straight-line method, the building’s cost for calculating the depreciation deduction would be the opening tax book value for the 2020–21 income year and not the original cost (if different).
If a building is sold, its depreciation recovery income would be calculated taking into account depreciation deductions taken before 2011–12 (if any) and depreciation deductions taken from 2020–21. The cost base would also reduce by the amount of deductions taken under the section DB 65 transitional rule.
Non-residential buildings -definition
A non-residential building is any building that is not a residential building.
A residential building is defined as:
- a dwelling as defined in Section YA 1; and
- a building in which accommodation is ordinarily provided for periods of less than 28 days at a time if the building, together with other buildings on the same land, has less than four units intended for separate occupation.
The definition of “dwelling” encompasses owner-occupied houses and apartments, and houses and apartments subject to residential tenancies.
The proposed inclusion of buildings that accommodate short-term stays is to ensure the definition of “residential building” includes buildings that the owner uses but also rents out on a short-term basis, as well as buildings used exclusively for short-term accommodation such as Airbnb properties. These may be within the definition of “dwelling”, but this would put it beyond doubt those buildings remain non-depreciable. The “less-than four units” provision is meant to exclude larger commercial operations such as motels from being treated as residential buildings.
Repeal of the 2010 transitional rule
As a result of reinstating depreciation on non-residential buildings, the transitional building fit-out rule introduced as part of the 2010 reforms would no longer be required. Accordingly, section DB 65 would be repealed, and the tax book value of the building adjusted for past DB 65 deductions.
Special depreciation rate
The ability to receive a special depreciation rate from the Commissioner would be restored for non-residential buildings.
The amendment applies for the 2020–21 income year.
2.2 Increasing the low-value asset write-off threshold.
This would increase the value of property that is eligible to be written off in the year of purchase from $500 to $5,000, before decreasing that threshold to $1,000. This means that expenditure on assets up to the threshold can be deducted immediately, so that all the tax benefit is claimed up front. This would provide increased cashflow in the short term.
The proposed amendment to increase the low-value asset write-off threshold to $5,000 would apply for property purchased on or after 17 March 2020. The proposed amendment to subsequently lower this threshold to $1,000 would apply for property purchased on or after 17 March 2021.
2.3 Increasing the provisional tax threshold.
This measure would change the threshold for paying provisional tax so that less taxpayers are required to pay provisional tax instalments throughout the year. For taxpayers with residual income tax of between $2,500 and $5,000, instead of paying provisional tax throughout the income year under the current law, they would only have to pay by 7 February following the end of the income year. IRD estimates the amendment would remove around 95,000 taxpayers from the provisional tax regime.
The amendment applies for the 2020–21 and later income years.
2.4 Bringing forward the application date for the broader refundability rules for Research & Development (R&D) tax credits.
The changes to the rules for R&D tax credit refunds make refundable credits more accessible for businesses. It does this by bringing forward the application date of broader refundability rules to the 2019–20 income year (year one of the R&D Tax Incentive scheme). These rules would otherwise have applied from the 2020–21 income year (year two of the R&D Tax Incentive scheme).
Limited refundability rules currently apply in the 2019–20 income year (year one rules), which only allow businesses who meet certain corporate eligibility and R&D wage intensity criteria to access refundable credits. A $255,000 cap applies to limit the total amount of credits that can be refunded.
Broader refundability rules apply from the 2020–21 income year (year two rules). These rules remove the corporate eligibility and R&D wage intensity criteria and replace the $255,000 cap with a cap based on labour-related taxes. The year two rules are aimed at enabling more businesses to access R&D tax credit refunds and would also enable more of these businesses to access greater amounts of refundable credits.
The proposed amendment would shift the application date of the year two broader refundability rules, so that these apply one year early (from the 2019–20 income year).
The broader refundability rules would apply by default to all claimants in the 2019–20 income year. Businesses would have the option of using the year one limited refundability rules if they prefer. When filing an R&D supplementary return, each business would be asked to confirm which set of refundability rules they intend to apply to their claim.
From the 2020–21 income year onwards, all businesses would have to use the year two broader refundability rules.
The amendment applies from the 2019–20 income year.
2.5 Ensuring GST does not apply to payments of the COVID-19 wage subsidy and leave payments.
The amendment ensures that COVID-19 Leave Payment and the COVID-19 Wage Subsidy (the payments) which were paid between 17 March 2020 and 23 March 2020 are not subject to GST.
The amendment is necessary because the Goods and Services Tax (Grants and Subsidies) Amendment Order 2020 (the 2020 Order) came into force on 24 March 2020. This Order added the payments to the schedule of non-taxable grants and subsidies in the Goods and Services Tax (Grants and Subsidies) Order 1992, however, it did not have retrospective effect. This means that the payments are only non-taxable from 24 March 2020, which is not the intent.
New section 89 of the Goods and Services Tax Act 1985 ensures that payments made between 17 March 2020 and 24 March 2020 are non-taxable grants and subsidies for the purposes of the Goods and Services Tax Act 1985 for the period between the Government’s announcement of the payments and the commencement of the 2020 Order. This means that recipients of the payments would not need to return GST on them, irrespective of when they were received.
The amendment comes into force on the day the Bill is enacted and would apply retrospectively from 17 March 2020.
3. Social assistance measures
3.1 Removing the hours test eligibility requirement for the in-work tax credit.
The removal of the hours-test would allow families that work variable hours or less than the required 20 (sole) or 30 (coupled) hours per week to receive the In-Work Tax Credit. The remaining eligibility criteria for the In-Work Tax Credit would remain unchanged. Therefore, recipient families must still be deriving income and cannot be receiving an income-tested benefit or student allowance, as per the existing requirements.
The amendment applies from 1 July 2020.
3.2 Allowing people on a temporary visa to qualify for Working for Families (WFF) if they are receiving an emergency benefit.
Those on a temporary visa in New Zealand are specifically excluded from the definition of New Zealand resident for WFF. This exclusion was intended to prevent short-term visitors from accessing WFF. It was not intended to prevent those in exceptional circumstances from accessing WFF.
The amendment allows people on a temporary visa who wouldn’t otherwise meet the Working for Families residency criteria to qualify for it, if the Ministry of Social Development (MSD) has granted them an emergency benefit. This ensures that people on a temporary visa who are granted an emergency benefit would qualify for the same WFF components as other beneficiaries. That is, they could qualify for family tax credit and Best Start. They would not qualify for the In-Work Tax Credit or minimum family tax credit because these payments are not available to a person who is in receipt of a main benefit.
The amendment applies from 1 April 2020.
3.3 Reducing the winter energy payment rates to their current levels from 2021 after a temporary increase in 2020.
As part of Phase One of the Recovery Package in response to the economic impacts of COVID-19, the Government agreed that the annual rates of WEP payments for 2020 would be $900 for single people with no dependent children, and $1,400 for couples or single people with dependent children. The increase is double the normal rate and is only intended to be temporary. Single people would receive $40.91 each week, and couples would receive $63.64 each week for the 2020 winter period (1 May to 1 October). These rates would be reduced back to their previous levels for the 2021 winter period.
The temporary WEP increase provides support to beneficiaries and superannuitants to help cover their heating costs this winter.
The amendment would ensure that the doubling of the winter energy payment rates for 2020 as part of the COVID-19 Recovery Package are only temporary. It would reduce the rates back to $450 and $700 for the 2021 winter period.
The amendment applies from 1 May 2021.
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