Tax Lockdown and Two Smoky Barrels

The Government have announced many tax changes as a result of COVID-19. Aside from the critically important assistance packages such as the wage subsidy, and bank finance guarantee schemes, from a tax perspective the big ticket items are:

• The proposed relief from late payment penalties and use of money interest
• The one-year carry back of tax losses
• The introduction of a same or similar business test for the carry forward of tax losses.

Watch the above video as Iain Craig, BDO's Eye on Tax, provides a brief recap on the many recent tax changes announced as a result of COVID–19.

Tax Payments

Inland Revenue’s announcement they will remit use of money interest and late payment penalties where you cannot pay your tax because of COVID-19 shows an unprecedented willingness to support taxpayers during this time.

There will be situations where you may not qualify for the remission so our recommendation.

• Continue to file your tax returns as they fall due especially where you may be due a refund;
• Review whether your ability to pay has been affected by COVID-19;
• Explore all existing options within the tax system such as Tax Pooling to manage your tax payments. 

Tax Loss Reforms

Being be able to carry back a tax loss incurred in the 2019/20 income year or the 2020/21 income year to offset against taxable income derived in the immediately prior year is a major reform which could generate a refund of tax which you have paid in respect of prior years. This is a temporary relief which may become permanent depending on post consultation.

The introduction of a same or similar business test for the carry forward of tax losses will enable some companies to raise additional share capital from new investors without forfeiting their tax losses.  There will be challenges around how the same or similar business is defined and anti-avoidance provisions introduced to stop trading in tax loss companies. 

Other reforms:

• The ability to claim a full deduction on the purchase of an asset with a cost below $5,000.  This will be reduced to $1,000 post 1 April 2021.
• The reintroduction of depreciation on commercial buildings at 2% DV for the 2020/21 tax year.
• The increase in the provisional tax threshold from $2,500 to $5,000.
• Increasing the potential tax refunds where your business undertakes research and development by bringing forward refundability rules scheduled for 2021 to the 2020 income year.

Tax Care Package

The Government have put together a care package comprising of tax reforms and social assistance:

• Concessionary treatment for late filing of 2019 income tax returns
• Additional Tax Relief for Businesses

More details are available at our COVID -19 microsite.