Tax Talk | Financial relief after cyclone and floods

This information is current as of 14 March 2023.

We provided advice earlier this month after the Auckland Anniversary weekend floods and update this with new measures that hopefully provide some relief to our clients. We outline key items below:

Relief

Provisions allow Inland Revenue to remit late filing and late payment penalties where returns and payments were late due to circumstances outside a taxpayer’s control, and Inland Revenue will be forthcoming in providing relief. The government has issued Orders in Council, meaning Inland Revenue can remit Use Of Money Interest (UOMI) where payment was made late as a result of the floods and/or Cyclone Gabrielle. If you have filed or will file a return (or made a payment late) as a result of the weather events, you will need to apply to Inland Revenue to seek relief.

Other relief available includes:

Income equalisation

Inland Revenue is allowing late deposits for the 2022 year and early withdrawals from the income equalisation scheme. Deposits for the 2022 year can be made until 30 June 2023. Note the refund will be income in the year that the application is made which, given the pending end of the financial year, might be significant. We recommend discussing the effect of any early withdrawals with your Baker Tilly Staples Rodway advisor.

Donated trading stock

The donated trading stock concession, which ensures donations of trading stock to approved donee organisations and public authorities are deductible for income tax purposes, will now be expiring on 31 March 2024 instead of 31 March 2023. This would include, for example, a supermarket donating groceries to a charity such as the Salvation Army or the local Council for distribution to those impacted by the weather events.

31 March 2023 return filing deadline

Inland Revenue have indicated they will delay following up unfiled 2022 income tax returns to allow taxpayers and tax agents in areas impacted by the weather events extra time to finalise these returns.  Additionally, tax agents can seek deferral status for clients significantly impacted by the Auckland Anniversary weekend floods or Cyclone Gabrielle, which effectively extends the 31 March 2023 deadline. If your business has been affected, and as a result, you need extra time to file your income tax return, please discuss with your Baker Tilly Staples Rodway advisor.

Care should be taken when asking your tax agent to seek deferral status. The time bar period (the period in which Inland Revenue can reopen a tax return to correct any error) is extended by a year and the Cost of Living Payment will not be available where a 2022 income tax return is filed after 31 March 2023.

Donations and Donee Organisations

Individuals can claim a tax credit of one-third of the cash donations made to approved donee organisations. Receipts can either be uploaded to myIR or retained for lodgement with the year-end income tax return. The tax credit itself will only be available after the end of the tax year.

Primary sector recovery grants

The government has announced grants to support farmers and growers impacted by Cyclone Gabrielle. Specific grants include:

• $2,000 per hectare up to a maximum of $40,000 to growers to remove silt from trees and vines, support the clean-up, and minimise tree and vine losses
• Up to $10,000 for pastoral and arable farmers to help with initial recovery on-farm, such as repairs to water infrastructure for stock and fencing

Applications for these grants open on the afternoon of 22 February 2023, and will be through the Ministry for Primary Industries.

Back to Work Grants

Back to Work Grants are available for businesses impacted by the Auckland Anniversary weekend floods. Eligible businesses can receive up to $5,000. Key criteria are that the business must:

• Have between one and twenty staff
• Have been directly impacted by the flood. This includes having sustained damage to property or trading stock and being unable to trade during normal trading hours
• Have cash flow issues
• Have been an otherwise viable business both before and after the floods
• Commit to acting in line with employment law and with due regard to their employees

The grants themselves are:

• $5,000 for red/yellow stickered businesses
• Up to $2,000 for non-red/yellow stickered businesses that can demonstrate significant need
• $750 by declaration based on demonstration of a moderate level of need

Applications for the grants can be made through the Auckland Chamber or via 0800 005 605.

Business Support Grants

Grants of up to $40,000 have been made available by government to help businesses impacted by the weather events to keep operating, position themselves for a successful recovery and maintain cashflow.

Businesses must at a minimum meet the following criteria:

• You’re facing significant cashflow issues due to continued challenges with customer access, ability to source stock, supply chain issues, inability to operate as usual due to the physical damage to equipment or premises, or delays in insurance assessment and repairs.
• Your business is otherwise viable both before and after the flooding.
• You are not receiving any funding from the Ministry for Primary Industries recovery fund.
• You commit to acting in line with employment law and with due regard to your employees.

The grants are being administered by relevant regional entities, as below:

• Northland: Northland Inc
• Auckland: Auckland Business Chamber
• Bay of Plenty: Toi Economic Development Agency
• Coromandel: Thames Coromandel District Council
• Gisborne: Trust Tairāwhiti
• Hawke’s Bay: Hawke’s Bay Chamber of Commerce
• Tararua: Tararua District Council

The regional entities may have further criteria (for example, Hawke’s Bay require the business to have fewer than 50 Full Time Equivalent employees). Please contact the applicable regional entity for further information.

Other Grants and Support

A variety of other grants have been offered for business, along with more general support during this time. Due to the breadth of grants and support available and the specific rules applicable, we recommend contacting the relevant regional entities to seek further advice:

• Northland: Northland Inc
• Auckland: Auckland Business Chamber
• Bay of Plenty: Toi Economic Development Agency
• Coromandel: Thames Coromandel District Council
• Gisborne: Trust Tairāwhiti
• Hawke’s Bay: Hawke’s Bay Chamber of Commerce
• Tararua: Tararua District Council

Tax Relief

The government has introduced a Supplementary Order Paper to provide further relief for people impacted by the weather events. Most of the relief is similar to the relief offered after the Christchurch earthquake in February 2011, with minor tweaks made to account for wage growth and inflation in the years since.

Ex-Gratia Welfare Payments and Accommodation

Payments made to employees and accommodation provided by employers to employees are generally subject to PAYE.

However, for a period of up to eight weeks after the relevant weather event, an employer can make an ex-gratia welfare payment of up to $5,000 and/or provide accommodation for an employee without either being subject to PAYE and without it taxable to the employee.

Fringe Benefits

Fringe benefits provided to employees for a period of up to eight weeks after the relevant weather event can be provided free of FBT provided the value of the fringe benefits provided is up to $5,000.

Key things to note for the ex-gratia welfare payments, accommodation and fringe benefits are:

• The employer must provide the payment/benefit for the purpose of relief of employees from the adverse effects of a weather event
• The accommodation cannot replace a PAYE income payment
• The provision of a payment/accommodation/benefit cannot depend on the seniority of the employee
• The $5,000 limit is a combined limit

Five Year Tax Exemption for Accommodation

As many readers would be aware, a tax exemption applies for accommodation provided on out of town secondments, with a two year exemption applying in general and a three year exemption applying where the employee is working on a project of limited duration (generally work on building capital assets such as buildings).

A five year exemption previously existed for projects associated with the Christchurch earthquakes and this is being revived for projects associated with the rebuilding and recovery of areas impacted by the weather events.

For the five year exemption to be available, the employee needs to start work at the distant workplace within the following periods:

• 12 February 2023 to 11 August 2023 (projects in relation to Cyclone Gabrielle)
• 8 January 2023 to 7 July 2023 (projects in relation to Cyclone Hale)
• 26 January 2023 to 25 July 2023 (projects in relation to the Auckland Anniversary weekend floods)

The time limit could be extended by Order in Council.

Insurance receipts

While we have previously outlined the income tax and GST impacts of insurance receipts received after weather events, this was in the context of the Auckland Anniversary weekend floods. Broadly, the principles remain the same.

GST

Insurance receipts will generally be subject to GST, however, there are several nuances in the rules. The payment must relate to a loss incurred in the course or furtherance of a taxable activity (e.g. an orchard that receives an insurance payout in relation to the orchard) and the insurance premiums must have been subject to GST under the normal rules (so not under the remote services rules) at the time the premium payments were made.

The GST must be returned in the period in which the insurance payment is received.

Income tax

The income tax treatment of insurance receipts will depend on the nature of the insurance payout.

Fixed assets

If the insurance payout relates to fixed assets, then its treatment will depend on what happens to the asset.

A fixed asset that is written off is treated as proceeds on disposal, net of any GST returned. If the tax book value is less than the proceeds on disposal, then depreciation recovery income would arise, which would need to be returned in the income tax return. If the tax book value is more than the proceeds on disposal, then a further depreciation loss would arise, which could be claimed as a deduction in the income tax return. Note, this includes any buildings written off as a result of the Auckland Anniversary weekend floods or Cyclone Gabrielle as the damage was caused by a natural event outside the taxpayer’s control.

For a fixed asset that is not written off, it is treated as a reduction in the adjusted tax value of the relevant asset. This reduction is net of any costs incurred. So, for example, if an asset has an adjusted tax value of $750,000, expenditure of $50,000 is incurred to bring it back to original working condition and the insurer pays out a sum of $70,000 in relation to the weather events, then the asset’s new adjusted tax value is $730,000. This may have an impact on the calculation of depreciation for future years.

Other

If the insurance payout relates to items other than fixed assets (for example, business continuity insurance and loss of trading stock), it will generally be treated as income for income tax purposes. The income is allocated to the later of the income year to which the replaced income relates and the earlier of the income year in which the amount is received or the amount is reasonably able to be estimated.

The above information is current as of 21 February 2023.

If you have any queries regarding the tax impact of any insurance receipts, or about relief being offered, please contact your Baker Tilly Staples Rodway advisor.