Tax loss carry-back scheme: Important considerations

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Standard imputation (ICA), ownership continuity and grouping rules still apply under the new tax loss carry-back scheme, while anyone who overestimates their loss will face IRD interest (UOMI) from the date of their first provisional tax instalment for the previous year.

Moreover, company profits already paid out via shareholder-employee salaries or dividends are unable to be reversed to take advantage of the scheme.

A basic overview of the scheme

Under the temporary scheme, taxpayers who expect to make a loss in either the 2020 or 2021 tax year will be able to estimate that loss and use all (or a portion of it) to offset any profit made in the previous year.

This allows those who need cash urgently to receive a refund of any income tax paid in the previous year.

It applies to companies, trusts, and individuals (other than those deriving only PAYE income) and those that operate through partnerships and look-through companies.

The legislative reference is sIZ8 Income Tax Act 2007.

Here are some of the things you need to consider before electing to use the scheme.

The ICA rules

Be mindful that standard ICA rules apply as part of the tax loss carry-back.

That means in order to obtain a refund of income tax, a taxpayer must have an ICA credit balance at the end of the most recently ended tax year (i.e. 31 March 2020) that is at least equal to the refund amount.

Alternatively, they can complete an interim ICA return up to the date of their refund request.

Provisional tax deposits held in a tax pooling account that are refunded under the loss carry-back scheme will be subject to the imputation debit rules that normally apply for pooling.

Given the potential exposure to imputation penalty tax of 10 percent and UOMI, the timing of tax pooling refunds due to a loss being carried back should be considered on an ongoing basis to mitigate this risk. 

The results can be catastrophic if they’re not.

We strongly encourage you to contact us before you refund any balances from the pool.

Ownership continuity and grouping rules

The ownership continuity requirements that relate to the loss carry-forward provision, and the normal grouping rules, also apply under the tax loss carry-back scheme.

This means a company must have maintained at least 49 percent common ownership throughout the loss year and preceding profit year.

For entities part of a group, the group must have retained 66 percent common ownership throughout the loss year and the preceding year.

That said, there are provisions in the tax loss carry-back legislation that deal with part years in the ownership continuity period.

IRD has examples of this in its commentary for the COVID-19 Response (Taxation and Other Regulatory Urgent Measures) Bill.

Time bar rule

IRD can reassess both the loss year and the preceding profit year at the same time – even if the preceding profit year is time barred.

That is something to keep in mind.

Situations where the scheme cannot be used

A taxpayer must have taxable income in the previous year.

Given that, a company that has already paid out its profit via shareholder-employee salaries will not have any taxable income to which they can apply future losses they wish to carry back.

This is also the case if the taxpayer has already distributed its profits as a dividend or made a subvention payment.

Therefore, they cannot use the scheme.

Taxpayers who have ringfenced rental losses will not be able to carry back losses either.

It's the same with multi-rate PIEs. This is because they have a cash-out for losses that provides immediate tax relief in this situation.

Situations where it will offer limited benefit

A taxpayer can only carry back losses one year (e.g. from the 2021 tax year to the 2020 tax year).

As such, there will be situations where the scheme will only free up a small refund of income tax.

Example one

Tax year Taxable income
2019 Massive profit
2020 Modest profit
2021 Huge loss forecast

Someone can only carry back the huge forecast loss for 2021 to the extent of the taxable income in 2020. As you can see, this is considerably lower in comparison to the 2019 tax year.

This will result in a very small refund of tax under the scheme.

Example two

Tax year Taxable income
2019 Massive profit
2020 Small loss
2021 Huge loss forecast

Someone can only carry back the small loss from 2020 to the 2019 year. The huge forecast loss from 2021 cannot be utilised as part of the scheme.

Once again, this will result in a small refund of tax.

Here’s another thing to remember.

If the taxpayer is part of a wholly owned group of companies, the loss amount they can carry back is limited to the amount that cannot be offset against the profits within that group during the loss year. In other words, the loss must be used within the group first during the loss year.

UOMI ramifications

A taxpayer can re-estimate provisional tax in the previous year as many times as they like under the scheme. They can keep doing so up until the date they file their return for the loss year (or the date by which they must legally file this return if this is earlier).

However, re-estimating provisional tax means the UOMI rules in s120KB Tax Administration Act 1994 will apply.

That means if someone overestimates their tax loss carry-back for the loss year – resulting in tax to be paid later due to receiving a larger refund to which they were entitled – they will be liable to pay UOMI from the date of their first provisional tax instalment in the preceding profit year.

Interest will be charged on the difference between the income tax they owe for the profit year and the income tax they paid in that year.

The income tax they owe for the profit year is based on the original taxable income for that year, minus the actual loss from the loss year. The tax they paid in the profit year is based on the original taxable income for that year, minus the total loss year refund they initially received due to overestimating their loss.

The amount on which UOMI is charged will be split evenly across the number of provisional tax instalments payable for the profit year.

Section 183ABAB of the Act – which gives IRD the power to remit UOMI for taxpayers who cannot make tax payments after 14 February 2020 due to COVID-19 – will not be able to assist.

TMNZ can help reduce UOMI

However, someone who is incurring UOMI due to overestimating their tax loss carry-back can use TMNZ to significantly reduce the interest cost on the additional tax payable if they are within 75 days of their terminal tax date for the profit year (or 60 days from the date IRD issues a notice of reassessment if the profit year is a closed income year).

Flexitax® allows them to apply backdated tax paid to IRD on the date it was originally due against their liability.

As such, IRD will treat the taxpayer as having paid on time once it processes this transaction, remitting any UOMI and late payment penalties incurred.

It’s a safety net for someone who has a ‘mare forecasting their loss.

It may pay to wait and see

For many taxpayers, the most recent tax year would have ended on 31 March 2020.

Up until the start of that month, when the impacts of COVID-19 really hit, everything was running smoothly. It’s quite likely their profitability was not significantly impacted.

But there’s a strong likelihood it will be during their 2021 tax year.

However, as it’s still early days in that year, having to estimate a loss to carry back to 2020 this far out is quite difficult.

Honestly, who really knows what the landscape will look like next month – let alone by 31 March 2021 – given the clouds of uncertainty lingering above the domestic and global economies in the wake of COVID-19?

The risk of incurring UOMI if they get it wrong means they may wish to err on the side of caution with their loss estimate and then re-estimate as the year progresses once the picture becomes clearer.

The other option is to hold off until later. That's what many appear to be doing at this stage given the low uptake.

Yet a downside of playing it safe or waiting a little longer is the taxpayer may not receive the full cashflow injection they are seeking right now.

Does their desperate need for immediate funds outweigh the potential UOMI consequences down the track, or can they afford to wait?

That’s something a taxpayer is going to need to weigh up before opting in.

Don't forget tax pool deposits

For those holding provisional tax deposits in TMNZ’s tax pool who want access to their payments now – but don’t yet have the confidence to file a loss carry-back – there is another option.

They can take a line of credit against their deposits, for interest rates below three percent. They also have the option of restoring those deposits at their original deposit dates once their cashflow situation improves.

However, there are a couple of things to note.

For starters, the ICA position needs to considered first as the debit rules for pooling apply in this situation as well since the transaction is treated as a sale of tax.

The tax must also be paid back and transferred to IRD within 75 days after the terminal tax date for that tax period.

Nonetheless, it's something else to think about if a taxpayer requires cash in the wake of COVID-19.


The above are some things of which to be aware when it comes to the tax loss carry-back scheme.

For business owners, this IS NOT tax advice. We recommend you speak with a tax specialist in the first instance about your particular situation. The legislation is quite complex.

You can find one of our premium accounting partners here.

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Webinars to get businesses geared up for the post-COVID-19 environment

From May until October this year, TMNZ will offer a new webinar that focuses on a different topic that is sure to provide value in a post-COVID-19 environment. Whether you are a business owner or tax agent or curious to know what the future will look like, be sure to come along and invite your team too. Learn more.

UOMI remission guidance: IRD overlooks provisional tax scenario

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Question: What is the amount on which IRD will remit interest (UOMI) at the date of the final provisional tax instalment if someone outside of safe harbour is unable to pay on time due to COVID-19?

The answer: We cannot say for certain as this is a scenario IRD has yet to address in its guidance (as of today’s date).

A taxpayer expecting their RIT for the year to be $60,000 or more must pay the remaining balance to settle their liability at the date of their final provisional tax instalment to avoid incurring UOMI.

For those with a 31 March balance date, 7 May 2020 is the final instalment for the 2020 tax year.

A problem that arises is someone might not know the actual RIT for the year by this date. In fact, it might be several months after the year-end before they determine this figure.

As paying the remaining balance on 7 May 2020 will therefore require some guesswork, there is a chance they could miscalculate and end up underpaying.


A taxpayer expects to have RIT of $80,000 in the 2020 tax year and must pay the final balance on 7 May 2020 to avoid UOMI.

They believe the final balance to settle the RIT for the year will be $40,000.

However, because of COVID-19, they are unable to pay on 7 May 2020 and decide to seek assistance from IRD.

The department agrees to grant a remission of UOMI on the $40,000 for eight months under s183ABAB Tax Administration Act 1994.

However, when the taxpayer finalises their return eight months later, it turns out their 2020 RIT is $85,000.

This means they should have paid $45,000 on 7 May 2020 to settle the liability for this year.

All of which begs the question: How will the remission of UOMI work in this instance?

Below we look at three possible approaches IRD may take.

Option one

IRD might only agree to remit UOMI on the $40,000 because:

  • This is what the taxpayer determined what was due and payable on 7 May 2020 under sRC10 (5) and (6) Income Tax Act 2007; and
  • The taxpayer should have had a reasonable expectation of their final liability for the 2020 year given the 7 May 2020 instalment is due after their year-end.

Option two

IRD may take an approach where its UOMI remission at the date of the final instalment applies to the lesser of:

  • The amount calculated by the taxpayer to the settle the liability ($40,000); or
  • The amount that is required to settle the liability ($45,000).

In both options one and two, the taxpayer will liable for UOMI on the $5000 shortfall from 8 May 2020 until this is paid.

Option three

IRD might be generous and agree to remit UOMI on the final balance of $45,000.

If that’s the case, a taxpayer unable to pay on time due COVID-19 receives a major concession for their miscalculation.

Flexitax® is your safeguard

However, this is merely speculation at this stage.

Until IRD clarifies its position, a taxpayer may wish to consider entering a Flexitax® arrangement as a safeguard.

If the department agrees to a full UOMI remission, cool bananas. There’s no requirement to follow through with the arrangement.

If IRD only agrees to waive UOMI on the amount calculated by the taxpayer, then Flexitax® lets them significantly reduce the interest cost they face on any additional tax payable.

As always, we look forward to the department’s clarification.

Over to you, IRD.


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COVID-19: How tax pooling can still help taxpayers

IRD may be taking a more flexible approach in terms of its interest (UOMI) remission for taxpayers grappling with the financial impact of COVID-19 – but any request for relief will still be at its discretion and on its terms.

As such, an IRD-approved tax pooling provider such as Tax Management NZ (TMNZ) can assist with provisional tax this month if someone:

  • Misses out on a remission of UOMI.
  • Wants greater payment flexibility to manage cashflow during this difficult time than what they'll receive if entering an IRD arrangement.
  • Prefers not to deal with the taxman.

IRD: ‘If you say you can’t pay, we’ll believe you’

During a Chartered Accountants Australia and New Zealand webcast last month, IRD said they will take a taxpayer at their word if they tell them they cannot pay tax on time due to COVID-19 and accept most applications to waive UOMI if they are for no more than two years from the date the legislation was enacted (this being 25 March 2020).

Taxpayers DO NOT need to have exhausted all financing options before seeking assistance either.

This indicates IRD will be more flexible in its remission of UOMI. It was certainly a different tone to what was found in the general guidance document they issued last month.

And that’s not a bad thing for those reeling from the effects of COVID-19.

Our view

However, we believe the department's approach to the remission of UOMI will fall somewhere in the middle. It won't be as heavy-handed as their general guidance suggest, nor will it be a no-questioned-asked waiver for all.

As such, with provisional tax instalments due on 7 May and 28 May, we explain how tax pooling can be of assistance to taxpayers who are short on cash given the current economic climate.

Below we compare the service to IRD’s remission of UOMI.

Tax pooling offers more flexibility

With Flexitax®, taxpayers have the complete flexibility to pay what they want, when they want for up to 13 months.

While IRD is applying a high-trust approach in terms of applications and offering a remission of UOMI until 25 March 2022, it may still determine the type of payment arrangement it strikes with a taxpayer, the length of that arrangement and the date(s) by which someone must make payment(s) after it reviews someone's request.

There is also an expectation for anyone seeking relief to pay the tax they owe as soon as practicable. Remember, this is not a tax holiday. Only in extreme circumstances will someone be granted 22 months to pay.

If someone cannot honour their arrangement, they will need to contact IRD to renegotiate an extension or request a write-off. They will have to show they've made every possible effort to pay their liability by the agreed date. Whether someone is granted an extension or write-off will come down to IRD’s discretion.

Given that, even though TMNZ interest applies during any Flexitax® arrangement, some may find paying this negligible seeing as it gives them the freedom to manage cashflow by letting them make payments as and when it suits them, rather than having to meet the rigid terms of IRD’s payment arrangement.

A taxpayer has 75 days past their terminal tax to settle any 2020 income tax they owe with TMNZ. They only pay for the tax they require and can easily amend the arrangement to reflect this.

TMNZ’s interest cost can be significantly lower than the 8.35 percent IRD currently charges when someone misses a tax payment. It is very competitive in comparison to most other forms of credit or finance.

And with tax pooling able to eliminate late payment penalties, this makes us the next best option for anyone wanting the flexibility to manage their cashflow.

Tax pooling is easier to arrange

Someone can complete a Flexitax® request in less than five minutes by phoning TMNZ or via their online dashboard. If emailing us, we can have the arrangement ready to go within five hours of receiving someone’s correspondence.

It is also light touch in terms of organising. After all, approval is guaranteed, and no security or financial information is required.

The only thing TMNZ needs is a taxpayer’s IRD number.

Compare that to IRD.

A taxpayer applying for a remission of UOMI will require some financial documentation before they make their submission. While IRD may not ask for this information in all situations – they say it will only be in cases of serious hardship where someone is requesting a write-off of the tax they owe– it’s important to have it ready just in case.

IRD will not finalise and approve anything until it completes a review of the application. That can take three working days or more.

The department is also experiencing unprecedented query volumes right now due to COVID-19, so this may mean getting a response takes longer.

Tax pooling is your safety net

We encourage those seeking IRD relief to enter a Flexitax® request just to be on the safe side.

That’s because there are no guarantees IRD will accept someone’s application for UOMI remission. Again, discretion is key.

If the department accepts the request for relief, then great. There’s no obligation to complete the arrangement.

On the other hand, if IRD declines someone’s request for a remittance of UOMI, a taxpayer can rest safe in the knowledge that they have a way to defer their upcoming 2020 provisional tax payment until June next year, while eliminating late payment penalties and reducing their interest cost.

Please contact TMNZ today if you wish to know more about Flexitax®.

COVID-19: Clarification around UOMI remission for 2019 terminal tax

IRD will only remit interest (UOMI) for terminal tax after 7 April 2020 if a taxpayer was unable to make this payment on time due to COVID-19.

It means anyone who is accruing UOMI on unpaid tax from the date of their final provisional tax instalment – or earlier dates, for that matter – for the 2019 tax year will need to use Flexitax® to reduce their interest exposure.

IRD has issued guidance on how the remission of UOMI will work for provisional taxpayers impacted by COVID-19 under s183ABAB Tax Administration Act 1994.

This section will apply for provisional and terminal tax payments for the 2020 and 2021 tax years. It is for payments due after 14 February 2020.

IRD says it drafted these eight scenarios based on current law.

However, they may change due to the additional legislative changes proposed on 15 April. The Government will pass the Bill containing these measures under urgency today.

The department will add further scenarios and other information as and when they are identified.

That said, for the purposes of this article, we will focus on terminal tax for the 2019 year as TMNZ has been fielding several questions about this, and IRD also covers this in its guidance.

Please note the following assumes a taxpayer was using the standard uplift method to calculate their provisional tax payments, is liable to pay three instalments, and has extension of time to file their income tax return for the 2019 year.

RIT of less than $60,000

If the taxpayer… Then the taxpayer…
Falls in safe harbour* and therefore the remaining balance to settle the liability for the year is due and payable at their terminal tax date in order to avoid UOMI.

Legislative reference: s120KE (1) and (2)(a) of the Act.

Will be eligible for a remission of UOMI incurred after 7 April 2020 if they were unable to pay 2019 terminal tax by this date due to the impact of COVID-19.

*To use safe harbour, a taxpayer with RIT of less than $60,000 must have paid all standard uplift instalments on time and in full, or had no obligation to pay provisional tax, for that year. Since the 2018 tax year, this provision has been available to individuals as well as companies and trust.

If a taxpayer fails to pay any uplift instalment on time or in full, they fall out of safe harbour and the rules in s120KBB (3) of the Act will apply.

This means if tax is underpaid at the date of their first and/or second provisional tax instalment, IRD will charge UOMI on the lesser of:

  • The uplift amount due, less any payment made in relation to that instalment; or
  • The RIT for the year divided by three, less any payment made in relation to that instalment.

At the date of the final instalment, IRD will charge interest on the remaining balance owing to settle the liability for the year.

RIT of $60,000 or more

If the taxpayer... Then the taxpayer...
Falls outside of safe harbour and therefore the remaining balance to settle their liability for the year is due and payable at the date of their final instalment* in order to avoid UOMI.
Legislative reference: s120KBB (1) and (2) of the Act.
WILL NOT be eligible for remission of the UOMI incurred between the date of their final instalment and 7 April 2020 on the remaining balance owing to settle the 2019 liability.

This is because that portion of UOMI is not charged due to the late payment of the terminal tax.

They will only be eligible for a remission of UOMI incurred after 7 April 2020 if they were unable to pay 2019 terminal tax by this date due to the impact of COVID-19.

*In order for a taxpayer with RIT of $60,000 or more to only face UOMI from the date of their final instalment, they must make their standard uplift payments on time and in full at their first and second provisional tax dates for that year.

Again, the rules in s120KBB (3) will apply if they fail to do so.

Don't forget Flexitax® if outside of safe harbour

A taxpayer accruing UOMI on underpaid provisional tax from ANY instalment date for the 2019 tax year can use Flexitax® to reduce this interest cost significantly and eliminate late payment penalties.

That’s because Flexitax® allows them to apply backdated tax paid to IRD on the date it was originally due against their liability.

As such, IRD will treat the taxpayer as having paid on time once it processes this transaction, remitting any IRD UOMI and late payment penalties incurred.

Using this can also put someone back into safe harbour (assuming their RIT for the year is less than $60,000).

A taxpayer has 75 days from the date of their terminal tax date to use Flexitax® to settle 2019 income tax liabilities.

COVID-19: Additional tax relief announced

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.

More information

You can find out more about today’s announcement by the Government via the links below.

TMNZ will continue to update you with any new tax developments relating to COVID-19.

Image: COVID-19 update

COVID-19 update: Devil in the detail with UOMI remission

Image: COVID-19 update

Update as at 14 April 2020 after IRD clarified its position following the publication of this article

Someone who is struggling to pay tax on time due to COVID-19 will have to engage with IRD and agree to the terms of a payment plan if they want to receive a remission of interest (UOMI).

Given that, they might find setting up a Flexitax® arrangement with TMNZ much easier.

But more on that later.

The criteria for UOMI remission

First, IRD has issued general guidance on the requirements taxpayers must meet in order to be eligible for a remission of UOMI on tax obligations due after 14 February 2020.

To qualify, someone must satisfy the department that they are:

  • Physically unable to make their payment when it’s due because of COVID-19; or
  • Struggling financially to pay on time because of the economic impact caused by the outbreak of the deadly virus.

IRD also requires taxpayers seeking relief to both contact them and pay the tax they owe “as soon as practicable”.

Now on the surface that doesn’t sound too onerous. However, this is the taxman we’re talking about and the devil always lurks in the detail.

And, when you delve a little deeper, it appears that they’re asking a lot from anyone seeking assistance due to COVID-19.

What does ‘struggling financially’ mean?

IRD says there must be a reduction in someone’s income or revenue as a result of COVID-19 which prevents them from paying their tax on time and in full.

The extent to which there needs to be a reduction in income or revenue is not explicitly set out.

IRD will look at GST and other tax return information to help it get a picture of someone’s financial affairs when determining the extent of the relief it will grant them. That’s why it’s important to keep filing these returns.

They may want to know how a taxpayer plans to sustain their business if they own one.

IRD indicates that they may ask a taxpayer to provide the following information when applying for a remission of UOMI:

  • Bank and credit card statements for at least the last three months.
  • Any management accounting information.
  • A list of aged creditors and debtors.

We understand this will be for more serious cases where someone is asking for IRD to write off the tax payable in addition to UOMI.

And, although they do not mention this specifically, their guidance document implies someone will also need to have reviewed other financing options before going cap in hand to IRD. The two examples they give are not helpful as they involve taxpayers who either cannot get an extension of their business overdraft or have maxed out their personal loans or credit cards. 

If the department deems the taxpayer has the means to pay on time following a review of their financial affairs, it will expect that person to do just that –and will take appropriate action if they don’t.

What does ‘as soon as practicable’ mean?

IRD says it will determine this on the facts of each case.

As a general guideline, they say someone will satisfy this requirement if they both apply for relief and agree to pay the tax at the earliest opportunity (or over the most reasonable period given their specific circumstances).

We take this to mean that taxpayers seeking a remission of UOMI must:

  • Be proactive and apply for this relief as soon as possible. If you have missed a payment, you can still contact IRD and ask for remission. 
  • Agree to pay the tax they owe as quickly as possible – most likely at a date or within a timeframe set by IRD based off the financial and tax return information it receives from the applicant. In other words, this WILL NOT be a two-year holiday or deferral from paying tax.
  • Contact IRD as soon as possible if they encounter further difficulty and need to re-negotiate the terms of the agreement.
  • Honour the agreement with IRD by paying the tax they owe.

If someone ticks those boxes, we believe IRD will consider them to have met the ‘as soon as practicable’ requirement.

How will the UOMI remission work?

Taxpayers seeking a remission of UOMI will agree to enter a payment plan with IRD.

This will likely be a regular instalment arrangement, but may also include:

  • An instalment arrangement with a deferred payment start date.
  • A partial write-off due to serious hardship and payment of the remaining tax by instalment or a lump sum.
  • A partial payment and balance write-off under maximising recovery of outstanding tax.

Again, the type of payment plan entered – and any instalment amounts payable – will likely to be determined by IRD based on someone’s financial and tax return information.

In serious cases of hardship, IRD says it may agree to write off the debt.

UOMI and late payment penalties will continue to accrue for those who enter a payment arrangement. 

However, once a taxpayer pays the tax they owe and IRD deems they meet the criteria for remission, it will automatically cancel UOMI.

IRD will also wipe late payment penalties.

Those who do not pay the outstanding tax will face UOMI from the date they stop complying with their arrangement.

IRD’s ability to remit UOMI due to COVID-19 under s183ABAB Tax Administration Act 1994 will apply until 25 March 2022.

Why paying with TMNZ might be easier

The requirements a taxpayer must meet to receive a remission of UOMI from IRD may prove to be one hurdle too many during what is already a difficult time due to the COVID-19.

They may find it easier to set up a Flexitax® payment arrangement with TMNZ if they’re unable to pay their 7 May 2020 provisional tax on time – or missed paying terminal for the 2019 tax year on 7 April 2020.

The reasons why are simple:

  • It’s light touch in terms of organising the arrangement – approval is guaranteed, and no security or financial information is required.
  • Taxpayers have the flexibility to pay as and when it suits their cashflow.
  • No need to worry about late payment penalties.
  • Competitive interest cost in comparison to most other forms of credit or finance. We’re the next best option for those who are ineligible (or don’t want to go through the process of applying to IRD) for a remission of UOMI.
  • The arrangement doesn’t impact other lending arrangements.
  • More time to pay – an extra 75 days to settle the 2019 terminal tax and up to 13 months to pay provisional tax for the 2020 tax year.
  • You only pay for the tax you end up requiring.
  • We’re approved by IRD.

Please get in touch with us today if you wish to know more about Flexitax®.


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Latest updates + insights on COVID-19 UOMI concession

Image: COVID-19 Response (Taxation and Social Assistance Urgent Measures) Bill

Taxpayers physically unable to pay their tax on time due to COVID-19
can also apply to have IRD interest (UOMI) remitted.

The COVID-19 Response (Taxation and Social Assistance Urgent Measures) Bill – which contains several other tax measures – was passed through all its stages under urgency in Parliament yesterday.

The commentary for the Bill clarifies when IRD can waive UOMI due to the impact of COVID-19 under new section 183ABAB of the Tax Administration Act 1994.

“This section would allow [IRD] to remit [UOMI] if a taxpayer’s ability to make a tax payment on time is significantly adversely affected by an outbreak of COVID-19,” it reads.

“This would include both where a taxpayer has been physically unable to make a payment on time, for example, because they have been quarantined, and where a taxpayer lacks the financial means to make a payment on time because of the economic impacts of COVID-19.”

It's the “physically unable to make payment on time” part in the commentary that piques our interest.

After all, the general assumption was the concession was only available to someone feeling the financial ramifications of COVID-19.

Nonetheless, it's logical to have something that caters to those who physically cannot make a payment due to the current situation.

What ‘physically unable to pay’ means

We are seeking clarification from IRD regarding what constitutes
being physically unable to make a payment on time due to COVID-19.

Our view is this will only apply to a handful of taxpayers.

For instance, take a person with no internet access or reliable phone service who lives in a remote rural area. They mightn't be able to pay at their nearest bank because the branch is closed or operating on reduced hours due to the Level 4 lockdown. In this instance, they may be eligible for remittance of UOMI.

Someone who has caught COVID-19 and is so sick they cannot physically make payment by any means may also qualify.

However, anyone in self-isolation who can pay electronically will probably be out of luck.

Of course, that's provided they don't meet the financial impact criteria (keep reading).


The commentary also confirms IRD will only waive UOMI once a taxpayer pays the core tax they owe.

To receive a remittance of UOMI, the taxpayer must make a request to the Commissioner.

They must satisfy the Commissioner that they both sought this relief and made their payment “as soon as practicable” to qualify.

The COVID-19 UOMI waiver explained

IRD may remit UOMI on tax due after 14 February 2020 if someone cannot pay on time due to COVID-19.

It applies to all tax payments such as income tax, PAYE and GST and other payments (e.g. Working for Families) where they charge UOMI.

IRD is developing guidance on when a taxpayer will be eligible for UOMI to be waived.

Initially, they said someone must show at least a 30 percent reduction in revenue for the same period 12 months earlier and have exhausted all options to support themselves financially.

But like everything right now, that may be subject to change.

The UOMI concession will apply for two years after the enactment date of the Bill.

However, there is a provision in the legislation to extend it by an Order in Council.

COVID-19 update: IRD to waive UOMI on late tax

IRD will have the power to wipe interest (UOMI) if those significantly impacted by COVID-19 cannot pay their tax on time.

The provisional tax threshold will also increase from $2500
to $5000.

The changes were announced by Minster of Finance Grant Robertson as part of the Government’s fiscal and economic response package to COVID-19.

A bill legislating the changes will be introduced shortly.

Below is an analysis of what you need to know following the Government’s announcement.

Waiving interest

IRD will have discretion to write off UOMI on payments due after 14 February 2020. That date was chosen because it coincides with when they announced their initial COVID-19 tax assistance options, which included re-estimating provisional tax payments or entering an instalment arrangement.

It will apply to all tax payments such as income tax, PAYE
and GST and other payments where UOMI is charged (e.g. Working for Families).

Anyone whose business is suffering due to the outbreak of COVID-19 is eligible to apply.

IRD is still developing the application process and criteria, but
says that for taxpayers to receive the concession, they will likely need to
prove they have:

  • Seen their revenue drop by at least 30 percent compared to the same time 12 months earlier; and
  • Exhausted all other options to support themselves financially.

It seems they will need to apply for the concession ahead of an upcoming payment.

Under the current proposal, IRD can remit UOMI for a maximum of two years past the enactment date of the bill.

What about late payment penalties?

As this legislation was put together hurriedly, there is
some confusion around whether late payment penalties (LPP) will still apply.

We suspect they been accidentally overlooked and IRD will also exercise its discretion under the Tax Administration Act 1994 to wipe LPP.

The department remits these whenever someone enters an instalment arrangement due to hardship.

Given the severity of the current economic situation, we believe it would be unfair if IRD wipes UOMI but continues to charge LPP.

Increased provisional tax threshold

The increase of the provisional tax threshold from $2500 to
$5000 will apply from the 2021 tax year onward.

It will be a welcome change. After all, it will reduce the
compliance cost for 95,000 taxpayers by removing them from the provisional tax

For taxpayers who would have otherwise been paying provisional tax in the 2021 tax year, IRD anticipates it will provide estimated cashflow benefits of $350 million.

The Tax Working Group recommended an increase to the provisional tax threshold in its final report last year.

Additional tax measures

The Government also announced several other tax changes as part of its COVID-19 package.

These include:

  • The reintroduction of a two percent diminishing value depreciation deduction for commercial and industrial buildings (including hotels and motels) for the 2021 tax year.
  • A temporary increase in the threshold for expensing low-value assets from $500 to $5000 during the 2021 tax year. The threshold will be $1000 from the 2022 tax year.
  • Changes to the calculation of the in-work tax credit to remove the hours worked test.
  • IRD having greater information sharing powers to facilitate a whole of Government response to COVID-19.

Other major announcements

  • Wage subsidies – $5.8 billion for businesses, up to a maximum cash payment of $150,000 over the next 12 weeks and capped at $585 per week per fulltime employee (and $350 for part-time employees). Businesses will need to demonstrate a decline of at least 30 percent in revenue due to COVID-19 for any month between January 2020 and June 2020.
  • Paid leave support – $126 million to support workers impacted by COVID-19 or self-isolation and a $100 million work redeployment package.
  • Assistance to those receiving benefits – $2.8 billion via a $25 per week increase in core benefits from 1 April 2020 and a doubling of the winter energy payment.
  • Additional health funding – $500 million to improve the COVID-19 response.
  • Aviation sector support – $600 million.

UOMI rates likely to drop

The recent official cash rate cut by the Reserve Bank of New Zealand means IRD is likely to drop its UOMI rates.

The overpayment rate will go from 0.81 percent to 0 percent.

That’s because due to a legislative amendment that is in the process of being made, it will be now based on the higher of:

  • The 90-day bank bill, minus 100 basis points; or
  • 0 percent.

Previously, IRD set this rate using only the 90-day bank bill, minus 100 basis points.

The 90-day bank bill as at 17 March 2020 was 0.66 percent.

Given that, without the legislative amendment, taxpayers will have faced the situation of IRD charging interest on their overpaid tax.

The rate of underpayment (currently 8.35 percent) is determined by taking the floating first mortgage new customer rate and adding 250 basis points. As such, we feel it may drop to around seven percent.

Any change in UOMI rates will likely happen after 7 May 2020. TMNZ will keep you updated.