IRD will have the flexibility to change statutory tax deadlines as part of new measures announced to provide relief for taxpayers during the COVID-19 pandemic.
Plans are also afoot to introduce a temporary tax loss carry-back scheme and relax the tax loss continuity rules.
Today’s announcement by the Government recognises taxpayers require more assistance during what is proving to be a financially trying time.
It follows the tax relief measures they unveiled last month.
The Government plans to introduce legislation containing these changes during the week beginning 27 April.
Detail about the new measures is light at this stage. IRD is not answering specific questions as they’re currently engaging with the wider tax community to determine how things will work.
Nonetheless, below is a summary of what we currently know about these new tax measures.
Giving IRD the power to change deadlines
IRD will have greater flexibility to temporarily change statutory tax dates, timeframes and procedural requirements for businesses and individuals impacted by COVID-19.
This discretionary power will be introduced via an amendment to the Tax Administration Act 1994.
While IRD will publish further guidance in the coming weeks following consultation with tax advisors, this may enable them to extend the deadlines for filing tax returns and paying provisional and terminal tax.
At this stage, the power will apply for a period of 18 months.
Temporary tax loss carry-back scheme
This will allow a taxpayer expecting to make a loss in either the 2020 or 2021 tax year to estimate that loss and use it to offset profit in the previous year.
They will also receive a refund of the tax paid in the previous profitable year.
A taxpayer will be able to cash out all or some of their losses in the 2020 or 2021 tax year. Under current rules, they can only carry them forward to a year when they make a profit.
They will have the option of re-estimating their provisional tax after the date of their final instalment if they require additional time to work out any estimated loss for the 2021 tax year.
IRD will be consulting with tax advisors to ensure the law and administrative guidance are clear.
Please note the Government is also considering a permanent loss carry-back scheme. It would apply from the 2022 tax year onward.
IRD says there will be public consultation about this during the second half of 2020.
Relaxing the tax loss continuity rules
Currently, a company cannot keep its tax losses if it has more than a 51 percent change in ownership.
However, the introduction of a ‘same or similar business’ test will mean they can and help make businesses seeking investment to keep afloat during the COVID-19 pandemic more appealing to investors, thus improving their access to capital.
IRD says the criteria which must be met to satisfy this requirement is modelled on Australia’s rules. This means a company must continue in the same or a similar manner it did before any change in ownership.
Again, IRD is engaging with the tax community to ensure the law is clear.
The Government intends to pass legislation relaxing the tax loss continuity rules before the end of March 2021.
They will apply for the 2021 tax year onward.
You can find out more about today’s announcement by the Government via the links below.
- COVID-19 (novel coronavirus) – tax changes to support businesses
- Supporting small and medium sized enterprises during the COVID-19 crisis
- Government backs business through COVID-19
TMNZ will continue to update you with any new tax developments relating to COVID-19.