Most businesses will be affected in some way by COVID -19. ABA Accountants in Orewa are here to offer professional advice to our clients in this time of uncertainty and assist you with ways of accessing the relief package offered by the Government. Please contact us if you have any further questions regarding these changes and how they may affect you, or if you would like assistance in any way on 09 426-8488 or email us at email@example.com.
Tax Relief for Individuals
If your income has been adversely affected by Covid-19 and you are having difficulty making payments relating to Child Support or outstanding tax, there are a number of options available. Please contact ABA Accountants in Orewa if you require assistance or more information about these options. The government relief package also offers the following:
- Benefits will rise by $25 per week. These changes will come into effect on 1 April 2020 and are permanent.
- To support beneficiaries and superannuitants, the rate of Winter Energy Payment will double in 2020. This change is temporary.
- From 1 July 2020, working families with children who are not receiving a main benefit and have some level of employment income each week will no longer have to satisfy the hours test to receive the In Work Tax Credit.
Tax Relief for Businesses and Cashflow
If you are having difficulties or concerns about meeting your normal tax obligations due to the effects of Covid -19 there are a number of options that have been outlined in the Economic Response Package:
- Provisional tax estimates can be re-estimated and early refunds paid out by IRD, if provisional tax looks like it will have been overpaid.
- If you have difficulty paying outstanding tax you can apply for an instalment arrangement through IRD or apply for a write-off due to serious hardship. Note that for any available losses to be carried forward, they will be reduced in proportion to the amount written off. The IRD may request a 12 months Cashflow Forecast and a Disclosure of Financial Position. Please contact Associated Business Advisors Accountants in Orewa if you would like assistance with this.
- Late filing dates may be available for some income tax returns. Extensions cannot be granted for GST and PAYE returns but any penalties for late filing may be remitted.
- Certificates of Exemption may be issued for those involved in contract work where schedular payments are to be deducted.
Tax Changes Announced for the 1 April 2020 – 31 March 2021 Financial Year to assist businesses and self employed
Writing off interest on some late payment of tax
The Commissioner of Inland Revenue will be given the power to waive interest on late tax payments for taxpayers who have had their ability to pay their tax on time significantly adversely affected by the COVID-19 outbreak. Use of Money Interest (UOMI) is routinely charged on late tax payments. The relief will apply to interest on all tax payments (including provisional, PAYE, and GST) due on or after 14 February 2020.The Commissioner will have this power for two years.
Example: Corrine owns a small café. In the last few weeks the business experienced a sharp decline as people avoid going out due to concerns about COVID-19.
Because of the effect of COVID-19 on the business, her turnover is about half of what it was a year ago, and she won’t be able to pay an upcoming tax bill in full. She’s tried to get a further extension to the business overdraft from the bank, but has been unsuccessful. There are a range of options Inland Revenue has to help customers who are struggling to meet tax payments. Working through these options, Corrine is able to enter into an instalment arrangement to pay off the tax bill over the next six months. This new measure will allow Inland Revenue to write off any use of money interest on this debt.
Fewer small businesses having to pay provisional tax
Increasing the threshold for having to pay provisional tax from $2,500 to $5,000 allows more small taxpayers to delay paying their taxes. This means they have until 7th February following the year they file to pay their tax, instead of having to pay in instalments throughout the year. This lowers compliance costs for smaller taxpayers and allows them to retain cash for longer.
Example: Jenny is a tour guide who provides tours of the Lord of the Rings filming location sites around Wellington through her company Jenstar Tours Limited (JTL). She gets the majority of her customers from tourist ships visiting Wellington. In the 2019-20 income year JTL’s tax liability was $8,000 but because of the recent changes to address the spread of COVID-19 its 2020-21 tax liability is expected to be half that amount.
The change in threshold from $2,500 to $5,000 will mean that JTL will not be a provisional taxpayer for the 2020-21 income year, so instead of paying tax throughout the year, JTL will not have to pay tax until 7 February 2022, which improves her cashflow during the year.
Immediate deductions for low value assets
Taxpayers will be able to deduct the full cost of more low-value assets in the year they purchased them, rather than having to spread the cost over the life of the asset. Taxpayers are currently able to claim an immediate deduction for the purchase of assets that cost less than $500. This threshold will be further increased to allow the immediate expensing of assets that cost up to $5,000, for a year (2020-21 income year). The temporary increase (to $5,000) is designed to incentivise taxpayers to bring forward investments to encourage spending. The threshold is being permanently increased to $1,000 (from 2021-22 income year onwards). This will reduce compliance costs for businesses and encourage businesses to continue investing. An increase in the threshold for writing off low value assets will reduce compliance costs for businesses. It will also have the side-benefit of stimulating business purchases (although overall impacts on demand are likely to be small).
Example: Capes Comics Limited (Capes) is a comic store that sells comics and comic-related merchandise who wants to expand by investing in two new display cabinets worth $4,600 in total. Clark believes this will increase his sales of high-value action figures. However, with the COVID-19 restrictions he is anxious about investing the $4,600 especially given he can only deduct the cost of the cabinets over time through tax depreciation, and not immediately.
The Government’s change to the low value asset write-off threshold will mean that Capes can claim an immediate deduction for the cost of the cabinets, meaning it can reduce the tax paid this year by $1,288, instead of that amount being spread over a number of years.
Reintroducing depreciation on commercial and industrial buildings
Depreciation deductions will be reintroduced for new and existing industrial and commercial buildings, including hotels and motels. This will help support businesses with cashflow in the near-term and assist with the broader economic recovery by stimulating business investment in new and existing buildings.
Example: Jane owns (through her company) a motel building with a tax book value of $3m. Under current tax law it is not depreciated. From 2021/22 Jane is able to depreciate the building at a rate of 2%, which means her company can claim a deduction of $60,000 in the 2021/22 year, reducing her taxable profit. This results in her company having $16,800 less tax to pay that year (as the company tax rate is 28%).
Wages Subsidy Scheme
Wage subsidies will be available for all employers that are significantly impacted by COVID-19 and are struggling to retain employees as a result. The scheme will be open to all businesses, including sole traders and the self-employed.
Wage subsidies will be available for businesses in all sectors and all regions that can show a 30 per cent decline in revenue for any month between January and June 2020 compared to the year before (including projected revenue).
The subsidy will be $585.80 per week for a full time employee (20 hrs or more) or $350.00 per week for a part time employee (less than 20 hrs). The payment will be made as a lump sum for a period covering 12 weeks. This means employers will receive a payment of $7,029.60 for a full time employee and $4,200 for a part time employee. The maximum amount any one employer can receive is $150,000. If you think you are eligible for this and require assistance in applying for this please contact ABA Accountants. https://www.employment.govt.nz/leave-and-holidays/other-types-of-leave/coronavirus-workplace/wage-subsidy/
Leave and Isolation Support
From 17 March 2020, the COVID-19 Leave Payment will be available to support people financially if they need to self-isolate, cannot work because they are sick with COVID-19 or cannot work because they are caring for dependents who are required to self-isolate or who are sick with COVID-19. The payments will be $585.80 per week for full time and $350 per week for part-time workers. The COVID-19 Leave Payment will be available for eight weeks from 17 March 2020. Employers will be able to apply for this more than once. https://www.employment.govt.nz/leave-and-holidays/other-types-of-leave/coronavirus-workplace/leave-payment
Please click here if you would like further information
Information sourced from https://www.beehive.govt.nz/release/121-billion-support-new-zealanders-and-business Employment New Zealand and the IRD website.