Tax Talk | US IRS stimulus payments
Due to the unprecedented circumstances currently upon us because of COVID-19 governments around the world...
Unfortunately the government has not extended these due dates, and instead announced (and subsequently enacted) that Inland Revenue will have the discretion to write off use of money interest where a tax payment was unable to be made due to financial difficulties in the current environment. Inland Revenue already have the power to remit late payment penalties so this is a new step. Inland Revenue will have the ability to remit use of money interest accrued after 14 February 2020 for any tax type.
Inland Revenue state:
“Under the current proposal, we may agree to write-off UOMI at our discretion, if we consider a business or individual has had their ability to pay tax on time significantly constrained by COVID-19. This proposal would cover all payment to us where UOMI is charged, whether they're taxes (such as income tax or GST), or other payments (such as Working for Families).” (underline added)
Subsequent to this statement, Inland Revenue’s website has been updated to list the criteria they would consider. The criteria are consistent with the wage subsidy criteria. Given the broad level of eligibility for the wage subsidy, we highly doubt this is the last we will hear from Inland Revenue around their criteria for use of money interest remission. To make matters worse, Inland Revenue have stated there is no need to do anything immediately. For business owners who are craving certainty in these very uncertain times, the combination of a statement by a government department that it will use its discretion about any matter and saying come to us later does not provide a huge amount of comfort. Unless your business is clearly and undeniably suffering, there is limited certainty about what to do. We would expect Inland Revenue to be generous with using its discretion, but matters may look different in 6 months’ time.
We would have preferred the government take the same approach as other countries who have simply deferred tax payment due dates by a month or more. Fortunately, tax pooling intermediaries such as Tax Management New Zealand (TMNZ) have products such as Flexitax® which allow businesses who aren’t sure about what the future may hold to have provisional tax available in the event that Inland Revenue chooses not to exercise its discretion in a particular case.
As a first step, all businesses should model their cashflow for the next 12 months at least, based on their best estimates of how COVID-19 will affect their business, to be updated as circumstances change.
After this has been done, here is a practical approach of how to deal with upcoming tax payments:
Flexitax® by TMNZ allows you to pay your provisional tax at any time when it suits your cashflow or when your tax liability is finalised. The requirement is that you complete your arrangements by your terminal tax date, 7 April 2021 if you have a 31 March 2020 year end. Using Flexitax® means you pay interest at rates 30% lower than IRD and have no penalties. There is no up-front cost, and in the event you end up not needing the tax, you can cancel your Flexitax® request without incurring any cost.
For those with more certainty on their cashflow, Tax Finance with TMNZ allows you to select your provisional tax payment date. You pay a market leading interest rate up-front and the core tax on your selected date. For upcoming tax obligations on 28 March 2020, 7 April 2020 and 7 May 2020, TMNZ guarantee that your funding costs to finance tax using TMNZ will be less than 3.95 percent, you only need to create this arrangement ahead of the due date. In the event IRD waives penalties and interest, you will be refunded the Tax Finance fee.
The government has also indicated further changes may be made to the wage subsidy in coming days. For information on the subsidy please stay up to date with our COVID-19 news hub.
The tax specific elements of the relief package were enacted this week. In addition to those elements announced on March 17, there are changes to the research and development tax credit regime. To recap, the tax specific elements of the relief package are:
While your usual advisor may be working from home, they continue to be contactable during this time. If you have any queries about the above items or any other matters, please contact them.
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