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Tax Talk | Further relief package details

Now that more information is available, we hope that this issue of Tax Talk will help answer some of the questions that you have regarding your financial security.

This information is available in two separate pages for you to share.

Tax due dates - what to pay

Three upcoming key tax due dates are:

  • 30 March (because 28 March is a Saturday) – 2nd instalment of 2020 provisional tax for 30 June balance dates
  • 7 April – 2019 terminal tax
  • 7 May – 3rd instalment of 2020 provisional tax for 31 March balance dates. GST due for 2 or 6 months ended 31 March.

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.

 

What should you do?

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:

  1. If the projected cashflow of the business is already being adversely affected and will be so in the foreseeable future, defer and pay tax when matters stabilise. Late payment will give rise to penalties and interest and you can be comfortable that these will be remitted, on application.
  2. If projected cashflow is expected to have a blip during the lockdown, and that means wages and other overheads might not be paid, same as 1 above.
  3. If projected cashflow is expected to have a blip during the lockdown, but there are cash resources which should meet outgoings over 2-3 months, same as 1 above but line up tax using Flexitax®. This means if Inland Revenue do not remit interest and penalties you will have the tax available to pay, but at lower TMNZ interest rates.
  4. If the business is reasonably unaffected but there is just a general worry then pay now, unless you are feeling very cautious in which case follow 3 above.
  5. If you are relaxed (e.g. you own a toilet paper factory) then pay the tax due.

 

Tax Management NZ can help with the tax payment uncertainty

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.

Wage and leave update

The key changes are:

  1. The initial $150,000 cap was removed and so large businesses are now eligible provided they meet the other criteria (30% reduction in revenue, make best efforts to retain employees and pay them a minimum of 80% of their normal income for the subsidised period and discussion with banks)
  2. For businesses with more than 100 employees, they can upload a spreadsheet instead of needing to individually detail each employee

 

The further points clarified are:

  1. The wage subsidy is not subject to GST (employers and self-employed people do not need to include the subsidy as a GST output when received)
  2. The subsidy is taxable income to the employees – therefore PAYE, KiwiSaver and similar amounts need to withheld as usual
  3. The subsidy is not taxable income to an employer or tax deductible when on-paid to employees. Therefore tax adjustments will be required for the 31 March year end.
  4. The subsidy is taxable income to a self-employed person.

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.

Other tax relief

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:

  • Depreciation on commercial and industrial buildings can be claimed as a deduction from the 2021 year
  • Assets purchased between 17 March 2020 and 16 March 2021 that cost less than $5,000 can be claimed as a deduction instead of needing to be depreciated (subject to additional criteria). Assets purchased from 17 March 2021 that cost less than $1,000 can be claimed as a deduction instead of needing to be depreciated
  • Taxpayers only become provisional taxpayers if they have a residual income tax of $5,000 or more from 2021, up from $2,500
  • The wider refundability of the research and development tax credit, which was originally to take effect from the 2021 year, are effective from the 2020 year

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.

DISCLAIMER: Our team is dedicated to helping you continue with business as usual, as much as you can. Information on government help is changing constantly and within hours of articles being added, the specifics may be out of date or only partially accurate. While we endeavour to keep this website accurate and current, our top priority is providing our clients with dedicated and relevant personal advice. If you need specific and up-to-date information, please seek help from your usual advisor directly.

No liability is assumed by Baker Tilly Staples Rodway for any losses suffered by any person relying directly or indirectly upon any article within this website. It is recommended that you consult your advisor before acting on this information.

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Tags COVID-19 Tax