Yesterday, the Government announced in principle some further tax changes and other measures aimed at improving the cash flow for SMEs. The announcement is very high-level at present. The legislation to make these changes will be introduced on the 27th of April but will apply from today.
Per the press release, the new measures include:
- $3.1 billion tax loss carry-back scheme (estimated cost over the next two years)
- $60 million estimated annual savings to business each year from changes to the tax loss continuity rules
- $25 million in the next 12 months for further business consultancy support
- Greater flexibility for affected businesses affected to meet their tax obligations
- Measures to support commercial tenants and landlords
Loss carry-back
Clearly, the most crucial of these changes is the loss carry-back scheme. Many countries already have loss carryback schemes, but what is interesting about this is that the press release says that this scheme will allow a forecast loss in the current year to be carried back to a prior year to allow prior year (or years’?) tax payments to be refunded. This scheme has not been designed yet, but it has already been signalled that use of money interest will apply where a loss is over-estimated, resulting in the over-refunding of tax.
The Inland Revenue is currently consulting on the design of the loss scheme. If you want to raise any concerns or ideas the email address is: loss-carry-back-issue@ird.govt.nz
We have already raised a few suggestions. We have submitted that would like the scheme to have the following features:
- The ability to make a conservative estimate in the near future to access cash in the near term, and then allow further estimating of the losses as the picture becomes clearer.
- The losses should be able to be carried back to any of the prior 3 years in line with other schemes around the world.
If you are already expecting a loss in the 20/21 year and have paid tax in recent years, then we suggest that you are prepared for the required forecasting as being ready could allow you a near-term source of non-bank cash-flow. At a minimum, you should ensure that your 19/20 financial information is complete. You should also be thinking about best-case, worst-case and most likely scenarios as this will be crucial for forecasting.
From our side, we are already investing time into streamlining budgeting through Xero apps. Once we know the exact requirements of the scheme, we will do our best to ensure that we can assist you in meeting these forecasting requirements as soon as possible so that you can get the much-needed access.
The loss carry-back may become a permanent measure. The Government will consult on this later in the year.
Additional funding for RBPN
Another great change is the announcement of additional funding for the Regional Business Partner Network (“RBPN”). That program had been running low on funding, so it is good that Government has topped it up. This program gives assistance for the likes of business continuity and cashflow planning. As mentioned in an earlier communication, we are part of that partnership program and are already providing these services. We are not exactly sure how these funds will be used, but we expect it will be in the form of increasing the amount available to each business. If COVID-19 is affecting your business, and you are not already registered for the RBPN, then we suggest that you follow this link and register ASAP.
Tax administration changes
Unfortunately, we have no further detail in the press release about what “greater flexibility for affected businesses affected to meet their tax obligations” entails. However, media sources are suggesting that this could be in the form of extending deadlines for returns and paying provisional and terminal tax for up to 18 months. The guidance actually says that the Inland Revenue will have the power to changes deadlines and due dates for up to 18 months.
Inland Revenue will give further guidance in the very near future and we will keep you informed.
Changes to commercial leases
The changes to commercial leases announced so far, are only extensions to notice periods for terminating leases and for mortgagees enforcing debts. These are underwhelming and have been widely-criticised by both landlords and tenants.
Further stimulus
The New Zealand Government has also foreshadowed a significant further stimulus package is coming in the very near future and out to the 14 May budget. Reading between the lines, the stimulus will be up to $20b.