Covid-19 and Tax

Tax Relief and IRD

Four Tax initiatives were announced to improve business cashflow. For the first three measures below, you do not have to prove that your business has been negatively affected by COVID-19 to be eligible – they are universal for all tax-paying businesses.

  1. 2% depreciation will be permanently (re)introduced for new and existing commercial and industrial buildings. This means that if your business owns an eligible building, you can depreciate the building’s value at a rate of 2%, claim this deduction and reduce your company’s taxable profit. A Bill will go through parliament soon and it will apply to provisional tax payments for the 2020-21 income year immediately.
  2. Businesses will be able to deduct the full cost of assets that cost up to $5,000 (up from $500) in the year purchased, rather than having to spread the cost over the life of the asset – but this is a temporary increase for the 2020-21 income year only. The threshold will then be permanently set at $1,000 from 2021-22 onwards.
  3. The threshold for smaller businesses having to pay provisional tax will permanently increase to $5,000 (from $2,500). This means that if you are a small business with an income tax liability for the year of $5,000 or less, you will have until the 7th of February (of the following the year you file) to pay your tax, instead of having to pay in instalments throughout the year.

The fourth and final business tax measure is about the IRD’s ability to waive tax interest on late tax payments, but you will need to demonstrate that this was due to COVID-19:

  1. The IRD will have the power to waive interest on late tax payments for businesses who have had their ability to pay their tax on time significantly adversely affected by COVID-19. If you pass the test for eligibility (details will be released soon), this will apply to interest on all tax payments (including provisional, PAYE, and GST) due on or after 14 February 2020.

To find out more visit: https://www.ird.govt.nz/Updates/News-Folder/covid-19-business-continuity-package

What to do now: your accountant should apply these measures through your normal tax filing process and/or apply for the late tax payment interest waiver.

In Work Tax Credits/Working for Families:

The In Work Tax Credit (IWTC) is an income-tested cash payment for working families with children. To be eligible, families must be in paid employment, and not receiving a main benefit or student allowance.

Currently, to be eligible for the IWTC, families must be “normally” working at least 20 hours a week (sole parents) or 30 hours a week (couples).

In the wake of COVID-19, some people may face a reduction in their hours so, from 1 July 2020, the number of hours required to be eligible will be removed i.e. if an employee receiving IWTC falls below the threshold of hours worked they will not lose their IWTC.

What does all of this mean if you aren’t currently experiencing any impacts?

Be prepared!

Start talking to your accountant, bank manager, lawyer and trusted advisors.

Take active steps to mitigate the impact of COVID-19 for yourself and your employees and record the steps!

Feel free to print off this Ministry of Health poster and put in the bathrooms, kitchens and anywhere you think may be helpful, in order to keep on top of our hygiene practices.

Click here for information on Covid-19 and your business

Click here for information on how Covid-19 spreads and how to avoid contracting it

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