Yesterday a bill was passed under urgency to implement the tax (and a few social welfare) changes announced the prior week. While these changes are welcomed, they are minor in the scheme of things.
However, before we get to that, there was a subtle change yesterday that is potentially going to be more relevant to you all right now.
Change in IR approach
More importantly for the short-term health of our businesses, Inland Revenue’s narrative has changed dramatically over the past few days.
You may have seen stories in the media yesterday that there is some form of relief coming. There is nothing official yet, but IRD’s website does now say:
“If your business is unable to pay its taxes on time due to the impact of COVID-19, we understand – you don’t need to contact us right now. Get in touch with us when you can, and we’ll write-off any penalties and interest.
It would help if you continue to file, however, as the information is used to make correct payments to people, and to help the Government continue to respond to what is happening in the economy.”
Of course, it is not a good idea to get behind on taxes, but it is a welcome relief that the Inland Revenue have signaled a pragmatic approach to the fact that businesses are cash-flow strapped right now and tax is not a priority.
Please reach out to us to discuss your taxes at the earliest possible opportunity.
The law changes
Coming back to the law that passed yesterday. The changes are:
- Reintroducing depreciation on “non-residential” buildings for the 2020-21 and later years. This applies to all non-residential buildings, not just buildings purchased after the date. The rate will be 2% DV or 1.5% SL.
- Increasing the $500 low-value asset threshold temporarily to $5,000 (and then settling back to $1,000 permanently). The $5,000 threshold applies for assets purchased for a 1 year period beginning 17 March 2020. From 17 March 2021, the threshold drops back to $1,000.
- Permanently increasing the provisional tax threshold from $2,500 to $5,000 for the 2020-21 tax year.
- Bringing forward the previous tax-payer friendly changes made to the R&D credit scheme. These changes were to apply from the 2020-21 year but have been brought forward to the 2019-20 tax year.
- Allowing IR to remit use of money interest for taxpayers affected by COVID-19. This will apply to interest accruing on payment due on or after 14 February 2020 and will last for 24 Months (unless extended by an order in Council).
- Removing the hours test for the in-work tax credit.
- Ensuring GST does not apply to Wage Subsidy and Leave Payment amounts.
- A temporary doubling of the winter energy payment for beneficiaries and superannuitants.
Of the above changes, the only one we will discuss in greater detail is the ability for Inland Revenue to remit use of money interest. Inland Revenue will release guidance on when this can occur, which can be found here: https://www.ird.govt.nz/covid-19-novel-coronavirus/tax-relief/uomi
This is a very welcomed change. If you follow the link above, you will see that the Government/Inland Revenue has already softened up the criteria dramatically. 9 days ago, when this change was announced, the write-off could only occur once all other funding avenues had been exhausted. As the guidance now stands this only needs to be “explored”. Please note at the time of writing, the Inland Revenue guidance was not complete.