Tax FAQs

We don’t have detailed legislation, but the commentary to date suggests that all businesses, regardless of legal form, would be able to use the concessionary treatment. 

This is a reference to tax year and the timeframe you calculate your tax position.  Ordinarily a tax year runs from 1 April to the following 31 March.  The 2019/20 for most taxpayers means from 1 April 2019 to 31 March 2020, 2020/21 means 1 April 2020 to 31 March 2021.  A date to 31 March is referred to as a standard balance date.

Taxpayers may apply for a different balance date that ends other than on 31 March.

A balance date between 1 October and the following 31 March is referred to as an early balance date.  One that falls between 1 April and the following 30 September is referred to as a late balance date.  Your balance date will likely have an impact on the new loss carry back provisions and when it is of relevance.  Hopefully the table explain the position a little better:

Yes, at this stage there is nothing to suggest that the loss carry back provisions are dependent upon proving the loss has arisen because of the impact of Covid-19. 

We don’t have legislation to rely on here, but we suspect not.  Fundamentally the company has not paid any tax, therefore there is nothing to carry back to.  This is an area we will be submitting on.

This is a difficult question to answer again in the absence of legislation.  Our thoughts are that under the current rules it is not possible to obtain a tax refund if there are insufficient imputation credits (a company can only be refunded income tax to the extent it has imputation credits).  The loss carry back rules are therefore possibly redundant in this situation. Further thinking is needed here and perhaps changes will be needed to the rules around imputation credit accounts. This is an area we will be submitting on.

Depreciation claims will be based on the historical cost of the building.  You may claim 2% per annum on this cost (on a diminishing value basis).

Land is not permitted a depreciation deduction; the purchase price will need to be apportioned to isolate the building component part.  Practically speaking, in our experience, the easiest way (and arguably fair and reasonable) is to apportion cost based on the respective rateable values (being those reported at the time acquired).   For example, commercial land and buildings were acquired for $1m (exclusive of GST).  The rateable values were $350,000 for land and $475,000 for the value of capital improvements.  For depreciation purposes, we consider it would be fair to claim depreciation apportioning $575,758 of the original cost to the building (calculated as $475,000/$825,000 x $1m).

No – Inland Revenue is not accepting cheques for payment of taxes. 

If you cannot pay by another means as a result of the National Alert Level, you should get in touch with Inland Revenue and advise them of this fact. 

You should pay your tax as soon as you are able to do so, and only then will IRD look at remission of penalties/interest. 

No, self-employed persons can spread the amount between the 31 March 2020 and 31 March 2021 tax years.  For example, if you received the wage subsidy on 25^th March then only one week of it relates to the year to 31 March 2020.  The remaining 11 weeks are to be reported in the year to 31 March 2021.

Strictly speaking, “Yes” FBT will continue to apply.  Fringe Benefit Tax (“FBT”) with respect to vehicles applies not on the basis the vehicle is actually used, but whether it is available for private use.  Just because it is not used privately does not preclude the imposition of FBT.

However, if the vehicle is not currently in the employee’s possession, our position is that it is not available (the non-essential travel restriction would prevent an employee from access to the vehicle); no FBT liability here.

If the vehicle is at the employee’s home, then we consider it would remain available for use (albeit not used) and therefore FBT would apply.  We are discussing with employers and, on a case-by-case basis, whether it would be appropriate restricting any use of the vehicle, i.e. formal clarification that the vehicle can neither be used for business nor private purpose, until further notice. 

A formal restriction on use, we would expect, would be sufficient to prevent FBT continuing to apply in the current climate.  Before acting, we recommend confirming that there are no legal complications (for those employees entitled to a vehicle as part of their overall package) and that it is not their only means of transport (they will still need to get groceries).

Please give your BDO contact a call if you would like to discuss.  In the meantime, we’ve attached a sample letter (by way of example only).

No, costs of an employee earning employment income are not deductible.

However, the position is modified if the employer reimburses the employee for costs suffered by the employee (that would otherwise be deductible but for the limitation above).  This is providing the expense is connected to the employment.  In this situation, the reimbursement is a non-taxable receipt to the employee (and the employer is entitled to a deduction).

An expense is connected with an employee’s employment only if:

• The expenditure is incurred (or the amount is paid) because the employee is performing an obligation required by their employment; and
• The employee earns employment income through performance of the obligation; and
• The expense is necessary in performance of the obligation.

We therefore consider that for those employees required to work from home an employer may seek to reimburse, on a tax-free basis, associated costs.

The amount of reimbursement may be estimated, providing it is on a fair and reasonable basis.

Notwithstanding any legal implications of this approach, we do not recommend, what is in effect, a salary sacrifice.  This approach may ultimately “save” the employee PAYE, however from experience this is not in “good faith” and will be challenged as tax avoidance by Inland Revenue.

Strictly speaking, yes.  You may not be able to zero-rate the transaction without further action. 

Most export sales of goods will be zero-rated for GST purposes.  This is because they have met the criteria to zero-rate, which are:

• The goods have physically been exported within 28 days of the time of supply (see below); and
• You, as the exporter, are named as the supplier on the relevant export documentation.

A deposit will trigger the time of supply, and in turn the 28-day countdown.

If the goods are not exported within the 28-days, then GST zero-rating cannot apply and (for those with a “plus GST, if any” contract) you will be seeking recourse from the purchaser (which clearly won’t be easy and is probably commercially not a recommended approach).

The good news is that the Commissioner can apply discretion to extend the 28-day timeframe, if asked.  

We therefore recommend immediate action and contact with Inland Revenue to request an extension (preferably before the 28-day timeframe has passed).  We are confident that the Commissioner will accept the request.

The request does not need to be wordy, include name of registered person and IRD number with a short commentary:

Due to the impact of Covid-19, we are unable to meet the timeframe to zero-rate exports.  We therefore apply to the Commissioner for an extension to properly permit zero-rating.

We have informally discussed this point with Inland Revenue and we do expect a formal remedy to this issue.  However, in the meantime, in our view, this is the best approach.

As a very general rule a business can claim a deduction, for income tax purposes, for expenditure that relates to earning income (from the business).  We often refer to this as “nexus”.

How does a business say that the ongoing expenses (that don’t just stop because the doors have been forced to close) have a nexus to earning income from that business?  The business has been interrupted.

It’s complicated, but we consider that there is a difference between a temporary closing and the ending of a business activity. 

At this stage, we consider expenses remain deductible providing the interruption is temporary and it is expected that normal business activities will resume.

Yes, you can.  As an immediate (and welcomed) relief package the low value asset write-off threshold increased from $500 to $5,000 for assets purchased on or after 17 March 2020.

Low-value assets can be written-off for tax purposes providing the cost is less than $5,000.  If you are a GST registered person, cost refers to the GST exclusive amount.  For non-registered persons it is the GST inclusive amount.

Be careful in working this out.  While an asset on its own may fall below the threshold, you are required to consider the total cost if you bought multiple of the same items from the same supplier.  For example, a single desk may cost $250 plus GST, however if you bought 21 from the same place, the relevant cost is the total cost, i.e. $5,250 plus GST, and the threshold exceeded.

From 17 March 2021 the threshold reduces to $1,000.

There is no depreciation claim available for residential buildings.  As part of the Government’s Covid-19 stimulus package depreciation was re-introduced on building; but ONLY FOR COMMERCIAL AND INDUSTRIAL BUILDINGS. 

If you are the owner of a commercial or industrial building, the rate of depreciation is 2% (diminishing value) and will apply from the start of the 2020/21 income year.  This will be from 1 April 2020 for most taxpayers.

There is some complication here, but it largely depends upon whether you are on an invoice basis for GST purposes and the contractual terms of the tenancy agreement.

For commercial rentals, ordinarily a GST liability will arise at the earlier of:

• Payment; or
• When payment becomes due.

Therefore, for those persons on an invoice basis for GST, a GST liability will arise even if payment is not received. 

However, we are aware that many tenancy agreements now include a “No Access in Emergency” clause.  It is our understanding that such clauses will result in a “fair proportion of the rent” not being payable.  On that basis the payment is arguably not due, and no GST liability arises.

We have foreseen the obvious cashflow consequences and have discussed the former with Inland Revenue.  We are confident that a landlord can seek to rely on new legislation allowing Inland Revenue to remit interest and penalties on late payments of GST (providing Covid-19 is the cause).

No, the rules around claiming rental losses changed from 1 April 2019.  From this date, tax losses arising from residential rental activities cannot be used as an offset against other forms of income.  The losses are carried forward and can be used to offset future residential rental income.