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Covid19 - Business Support UPDATED
Since 2020, measures to help support businesses adversely affected by COVID-19 have been introduced in several waves. Initially the intention was to boost confidence and help businesses get through the crisis. Subsequently it became clear that support through a recovery period would be needed, as well as ‘just in case’ measures for possible rapid response to higher Alert levels for some regions.
The original package included:
- a tax loss carry-back scheme
- greater flexibility for taxpayers in respect of statutory tax deadlines
- measures to support commercial tenants and landlords, and
- proposed changes to the tax loss continuity rules
- further business consultancy support.
Further developments included wage and leave subsidies, resurgence support, loan products and further tax relief around depreciation, bad debt write-offs and tax losses/refunds for research and development tax credits.
Some support measures were extended or adjusted, sometimes repeatedly. You might be forgiven for being a bit confused about where we’re up to with all of them, so we put together this update.
It’s important to keep current. Let us know if you’re worried about not being able to pay your tax on time, if your cashflow is dangerously low, or if you need access to capital. And if you’ve taken advantage of tax relief or business support measures, make sure your records are in good shape to support your tax return.
Consultancy support - Businesses had access to free professional consultancy services through Regional Business Partners (RBP) with tailored specialist support for business continuity planning, finance and cash flow management, HR and staffing issues. COVID-19 Business Advisory Funding has been fully allocated. The RBP can advise on what other support is available.
Debt hibernation - The business debt hibernation scheme helps businesses manage their existing debts until they can start trading normally again. It allows qualifying businesses to defer debt repayments by up to 7 months. The scheme has been extended to 31 October 2021.
Depreciation - From the 2020/21 income year onwards, depreciation is allowable for commercial and industrial buildings. For a limited period, the low-value asset threshold for depreciation increased from $500 to $5,000. For items that fall below the threshold, the depreciation loss is the item’s cost. Above the threshold, items must be depreciated using the diminishing value or straight-line method. The increase allowed the immediate expensing of assets that cost less than $5,000 and that were purchased between 17 March 2020 and 16 March 2021. For assets purchased on or after 17 March 2021, the threshold permanently increases from $500 to $1,000.
Insolvency support - The introduction of a ‘safe harbour’ from sections 135 and 136 of the Companies Act 1993 provided relief to company directors facing significant liquidity problems because of COVID-19. This temporary provision expired on 30 September 2020 but may be reinstated by regulation if required.
Leave support - The Leave Support Scheme (LSS) is available for employers, including the self-employed, to help pay employees who need to self-isolate and can't work from home. It provides a 2-week lump sum payment of either $585 per week for full-time workers, or $350 per week for part-time workers. A short-term absence payment was added to cover eligible workers (including self-employed) needing to stay at home while awaiting COVID-19 test results. It provides a one-off (once per 30 days) $350 payment. It also covers parents, caregivers, household members or secondary contacts of the eligible worker awaiting test results. You cannot get more than one COVID-19 payment for the same employee at the same time from Work and Income.
Loan products - The Business Finance Guarantee Scheme supports lenders by the government taking on the default risk of up to 80% of the loan. Participating lenders can provide new loans, increased limits to existing loans or a revolving credit facility to eligible businesses. The scheme was extended to June 2021 with additional availability and flexibility. Be aware that the Government guarantee does not limit your business’ liability for the debt. If your business defaults on a scheme loan, the lender will follow its normal processes to recover the debt. The Small Business Cashflow Loan Scheme grants eligible businesses an interest free loan (up to a capped maximum), if they repay it within two years. The scheme has been extended, broadening eligibility, and extending its availability to 31 December 2023. Businesses or organisations that have fully repaid their loan before the end of 2023 can re-borrow.
Loss carry-back - A temporary tax loss carry-back scheme, limited to a 3-year window, means losses in the 2020- or 2021-income years can be used to offset profits made the year immediately before. If you want to use this option, you need to be eligible and let Inland Revenue know you want to elect into the scheme. If you’re expecting a tax loss for the year ended 31 March 2021, you might be eligible for a refund of provisional tax previously paid for the 2020 year. There has been discussion about introducing a permanent scheme but there’s no further news on this yet.
Loss continuity rules - These allow tax losses to be carried forward. Up till now, if a company had more than a 51% change in ownership it couldn’t keep its tax losses. As raising capital may result in a change to the existing shareholder structure, companies wanting help need flexibility to access capital and to carry losses forward to offset income when they return to profit. Proposed new rules are expected to apply for the 2020/21 and later income years with a ‘same or similar business’ test, meaning the business must continue in the same or a similar way it did before ownership changed. Inland Revenue will be alert to prevent loss trading.
Provisional tax - The RIT threshold for provisional tax increased from $2,500 to $5,000 from the 2020/21 tax year. This allows small businesses to retain cash for longer and reduces the number of provisional tax taxpayers. If you are a building owner, you can adjust provisional tax payments in anticipation of additional deductions available as depreciation for commercial and industrial buildings was reintroduced from the 2020/21 income year. If your business is affected by COVID-19 and you need to re-estimate your provisional tax as your income falls short of the estimate and provisional tax has been overpaid, it may be possible to arrange early refunds.
Research and Development (R&D) - Start-up companies are able to cash-out their tax losses arising from eligible R&D expenditure and avoid carrying the losses through to the next income year. The rules around R&D expenditure are detailed and eligible R&D expenditure requires approval from Inland Revenue. If you want to claim under these rules, you need to look at this sooner rather than later, and have good records of such expenditure.
Resurgence support - The resurgence support payment (RSP) is available to help businesses directly affected when there is a move to Alert Level 2 or above for a week or more. This is especially relevant to sectors like hospitality and events, who face particular disruption as Alert Levels change. Businesses can apply to receive the lesser of:
- $1,500 plus $400 per fulltime-equivalent (FTE) employee, up to a maximum of 50 FTEs, or
- Four times (4x) the actual revenue drop experienced by the applicant.
The maximum payment is $21,500. Eligible businesses must have experienced at least a 30% drop in revenue or capital-raising ability over a 7-day period after the increased alert level. Where a business is one of a group of commonly owned businesses, that drop also needs to be present across the commonly owned group as a whole. Eligible businesses must have been in business for at least 6 months to apply. Applications for the RSP for the alert level increase announced on 17 August opened at 8am on 24 August.
Short-term absence payment - See Leave support
Tax deadlines - Inland Revenue has discretion to grant extensions to filing dates for some income tax returns. Extensions can't be granted for GST and PAYE returns, but late filing penalties may be remitted. Under limited circumstances, late payment penalties may also be remitted.
Tax debt - If you are unable to pay tax by the due date, Inland Revenue has discretion to write-off penalties and interest. Contact them to indicate when tax can be paid, or request instalment arrangements. You may be eligible for a UOMI write off.
Tenants and landlords - Temporary law changes were made to support tenants unable to pay rent and landlords unable to meet mortgage payments. These made it easier to retain lease arrangements and get back to business as usual after the pandemic, giving parties more time to fulfil their payment obligations or negotiate temporary changes to agreements or payment plans. These temporary changes have largely ended.
Wage subsidy - The wage subsidy schemes ensure employers can keep paying their employees, and workers continue to receive income, and stay connected to their employer, even if unable to work their normal hours. The original scheme closed in June 2020. An 8-week extension was available nationally after that, applications closing in September 2020. A 2-week Resurgence Wage Subsidy payment was available for those affected by COVID-19 resurgence, applications closing in September 2020.
Following the move to COVID-19 Alert Level 3 on 28 February 2021, applications re-opened for the March wage subsidy scheme until 21 March 2021. The Wage Subsidy scheme (WSS) will be in place if there is an escalation to Alert Levels 3 or 4 anywhere in New Zealand, for 7 days or more.
Wage subsidy August 2021 - Eligible employers and self-employed anywhere in the country may apply for the WSS if they expect a loss of 40% of revenue because of the alert level increase announced on 17 August. The WSS rates have increased. Businesses will be eligible for $600 per week per full-time equivalent employee and $359 per week per part-time employee, paid as a 2-week lump sum. Applications opened on Friday, 20 August 2021.
Wage subsidy tax implications - The wage subsidy is considered excluded income to businesses and is also GST exempt. When passed on as wages, businesses don’t get a deduction for income tax purposes. Keep comprehensive records of wage subsidies received and passed on to employees, as well as any subsidies your business subsequently repaid, to be prepared for any adjustments required in your tax return.
Working from home (WFH) costs and reimbursements - The timeframe for tax-exempt reimbursement payments made by employers to employees for WFH now extends from 17 March 2020 to 30 September 2021. Make sure your records have enough detail to show:
- what period these payments relate to
- payments comply with requirements for qualifying payments to be treated as exempt income
- where some payments are exempt and others taxable and where some portions of a payment are exempt but others are taxable
- For telecommunications devices/plans, staff reimbursements are exempt income up to $5 per week. If reimbursement is above this amount, the exempt amount is 25% if the device/plan is used partly, 75% if used mainly, or 100% if used exclusively for employment purposes
- WFH payments claimed between 17 March 2020 and 17 March 2021 allow an additional $15 per week, per employee, to be exempt income for other WFH expenditure payments may be tax exempt for use of furniture or equipment when WFH to reimburse depreciation on the item. The payment will typically be for the cost of the asset and the payment will still be deductible to the employer. Note the $5,000 low-value asset threshold applying between 17 March 2020 to 17 March 2021 applies here.
Write-offs - Ordinarily, a bad debt must be written off by the end of the tax year. For the 2020 year, the timeframe to write off a bad debt and be able to claim a deduction for that income year was extended to 30 June 2020. This is subject to conditions. Make sure your records for the 2020 and 2021 years reflect any write-offs for bad debts for the relevant period and have sufficient detail to justify the write-off.
Chris Lynch, CA
Managing Director, Lynch & Associates Limited
Get in touch by Email or Phone: +64 9 366 6008
Chris is the founding Director of Lynch & Associates Limited.
He qualified as a CA in 1973 and is a full member of the College of NZICA now merged with CAANZ. His expertise is in the areas of tax, accounting, business development, forecasting, and auditing. He has a clear focus on adding value to his clients lives and businesses and seeing the people behind the numbers.
Chris experience includes working as a CFO and company secretary for some of New Zealand’s leading companies before starting his own CA firm in 1999. In his previous roles Chris has worked in the wool, dairy, engineering FCG, banking and investment banking and stock broking industries.
Today he uses this vast experience to assist his clients add value to their businesses and personal lives.