Covid 19 response – business cashflow and tax measures
The NZ Government has acted swiftly to support businesses with some measures and tax changes aimed at helping business hold onto some tax money to meet ongoing business expenses and also encourage further spending to keep the economy moving. They have done so by:-
Remission of interest
Allowing Inland Revenue to remit use-of-money interest (UOMI) for customers significantly affected by Covid 19. This will primarily assist taxpayers with payments due for 2019 terminal tax and, given the lock down, I would imagine this to be extended further to assist with 7 May provisional tax. The condition to be met is that there has to have been financial impacts experienced from Covid 19. However, I would expect that to be a given for most businesses following the lock down.
Provisional tax threshold raised
For the coming 2020/21 tax year taxpayers will be deemed to be a provisional taxpayer where their residual income tax is greater than $5,000 (previously $2,500). This is aimed at relieving the cashflow burden imposed on small businesses and the self-employed who may have lower untaxed earnings levels. For them they may find that they no longer have to find the cash to fund provisional tax instalments for the 2020/21 year (28 Aug, 15 Jan and 7 May).
Whilst this may bring some cashflow relief in the short-term the tax does not disappear. Instead it will be due in one lump sum on the terminal tax date – 7 Feb or 7 April (if extension of time applies).
Again for the 2020/21 tax year, the threshold for depreciation of small assets has been lifted to $5,000. Below this the asset can be be written off in full, subject to some conditions being met.
For the 2021/22 year the threshold will reduce to $1,000.
This is clearly aimed at relieving tax on small business by increasing their tax deductions and also encouraging further investment to keep money circulating in the economy.
Depreciation on buildings
This change restores a depreciation deduction for non-residential buildings from the 2020/21 year onwards. The rates to be applied are 1.5% straight line or 2% diminishing value. This is a permanent measure with a few technical issues for buildings that have been held since before the 2012 tax year when depreciation was removed.
For further technical details and analysis on these topics please refer to the Tax Policy publication