As a further response to the impact that Coronavirus is having on New Zealand businesses, further tax concessions have been announced by the New Zealand Government. These concessions will allow New Zealand businesses to offset forecast losses against income recorded in previous years on which New Zealand income tax has been paid.
This is a continuation of the New Zealand Government’s focus on helping businesses to stay solvent during both the current lockdown and during the period that conditions are eventually eased. It is expected that there will be further announcements of additional assistance over the next few weeks.
This change, which at time of writing is still to be legislated although is (almost) certain to be passed, will allow New Zealand businesses who made a loss in the 2019/20 income tax year, or are forecasting to make a loss in the 2020/21 income tax year, to use those losses to offset profits made in the previous year.
This is likely to apply to businesses who can demonstrate a 30% reduction in sales as a direct result of the Coronavirus outbreak.
Forecast Losses To Be Allowed To Offset Previous Year’s Profits
With the 2020/21 income tax year having only just begun, Inland Revenue will be allowing a forecast loss to be offset against any profits earned during the 2019/20 income tax return year.
The new loss carry-back scheme will allow actual losses for 2019/20 to be offset against previously reported profits for 2018/19, or forecast losses for 2020/21 to be offset against the taxable income earned for 2019/20.
Income Tax Losses Converted Into Refunds
Usually in the case where costs exceed income the losses are only able to be carried forward and offset against future profits before any income tax is payable. This change will allow those losses to be cashed in immediately where income tax has already been paid for the current or previous income tax year.
While this will certainly be a benefit for businesses who may have paid income tax for 2018/19 but may be set to record a loss for 2019/20, it will also benefit others. If your company has made provisional (pay-as-you-go) tax payments for either the 2019/20 or the 2020/21 income tax year and you are now forecasting a loss for one or both of those years as a result of the Coronavirus situation, you will be able to re-estimate that provisional tax and receive a refund.
Furthermore, the usual date for re-estimating provisional tax for the 2019/20 income tax year is 7 May 2020. The new legislation will allow taxpayers to re-estimate it after this date in order to give you more time to work out the estimated loss for the 2020/21 income tax year.
Over the next 2 weeks we will be consulting with Inland Revenue on the likely form and substance that this opportunity should provide.
Naturally, it is currently a policy statement from the New Zealand Government and the nuts and bolts will need to be sorted out very quickly. Inland Revenue suggests that this consultation process should be complete by 27 April 2020 in order to allow the benefits to flow to businesses as soon as practicable.
We would suggest you contact us for more information and to assist with any tax planning, particularly where the shareholders are Australian tax residents.
Continuity Rules To Change For Tax Losses
As part and parcel of these changes, the New Zealand Government is also proposing to relax continuity rules.
As the New Zealand rules currently stand, where more than 51% of the shareholding (ownership) changes in a single year any tax losses being carried forward to that point are lost. This was to discourage companies “buying up” loss-making companies so that they could reduce their own income tax obligations.
However, there is recognition that there could be changes in ownership necessary to keep a business going that have nothing to do with any dodginess from an income tax planning perspective.
For example, an adjustment to the shareholding may be a requirement for the company to secure the capital needs to continue to stay afloat and hopefully recover in the future.
The New Zealand Government says it will be doing what it can to encourage businesses to persevere through this health crisis and for that reason the rules will now reflect the Australian rules where a business can carry forward losses, notwithstanding a significant change of ownership, providing the business continues to carry out its operations in the same or a similar way that it did prior to the change in ownership.
We Are Here To Help
If you believe your business’ results had already been impacted for the year ending 31 March 2020 and you could benefit from this announcement, we suggest you contact us to arrange for your financial statements and income tax return to be prepared so that you can cash in on this opportunity.
Furthermore, if you believe your result for the 2020/21 income tax year is likely to be significantly impacted as a result of the Coronavirus situation, you should contact us to ensure any provisional tax obligations are updated for both the 2019/20 and 2020/21 income tax years.
You can give us a call on 1300 791 600.
The information in this article is indicative of NZ tax rules and changes and not intended to be complete for all intents or purposes and does not constitute advice. It is recommended that you obtain professional advice, suited to your particular circumstances, from us before acting on anything you read.