Guidance on recent COVID-19 tax legislation

On 19 June 2020, Inland Revenue advised that guidance on recent COVID-19 related legislation is now available at www.taxpolicy.ird.govt.nz. The changes were included in the COVID-19 Response (Taxation and Other Regulatory Urgent Measures) Act 2020 (No 10 of 2020) enacted on 30 April 2020 and the COVID-19 Response (Further Management Measures) Legislation Act 2020 (No 13 of 2020) enacted on 15 May 2020. The measures in these Acts are aimed at assisting the Government’s response to the economic impacts of COVID-19. The changes include the following:

Loss carry-backs

The COVID-19 Response (Taxation and Other Regulatory Urgent Measures) Act 2020 introduced a tax loss carry-back measure. This allowed businesses that were or anticipated being in loss in either the 2019/20 or 2020/21 tax years to carry some or all of that loss back to the preceding year where profits were earned.

Loss carry-forwards and carry-backs are intended to prevent systematic over-taxation over time. If taxpayers always pay tax when they earn income but never get relief when they have a loss, they will pay more than the statutory rate of tax over time. Loss carry-backs are one way to address this. The Government also announced additional policy changes for the loss carry-forward rules but these do not form part of this Act.

The loss carry-back measure in the Act is intended as a temporary measure to provide fast cash flow for businesses in loss during the period affected by COVID-19. The measure enables tax refunds for a profit year to be paid before the loss year has finished by enabling taxpayers to estimate the loss for the year and transfer it back to the profit year.

The measure provides for a one-year carry-back. The Government has indicated its intention to develop a permanent loss carry-back mechanism to apply from the 2021/22 tax year. The longer term regime may be more traditional such as not allowing a refund before the loss has been established and may have more integrity measures to cover some technical risks. The longer term regime may provide for a one-year or two-year loss carry-back.

Almost all types of taxpayers – companies, trusts and individuals – are eligible to carry back losses.

Administrative flexibility for Inland Revenue

The Act introduced a temporary discretionary power for the Commissioner to issue a COVID-19 response variation. It allows the Commissioner to:

• extend a due date, deadline, time period or timeframe in relation to a requirement, and
• modify a procedural or administrative requirement that must be met under a provision, for example, modifying the nature or form of information that is required to meet the provision.

If  a taxpayer complies with an alternative set out in a variation they will be treated as if they complied with the requirements set out in legislation.

Variations must be made within and relate to the approximately 18-month period from 17 March 2020 to 30 September 2021. This limit recognises that this is a discretionary power conveyed on the Commissioner for the purpose of assisting taxpayers with certain compliance issues in the wake of COVID-19.

As at 18 June 2020, the Commissioner has made the following COVID-19 variation determinations:

• COV 20/01: variation to section HB 13(3)(b) of the Income Tax Act 2007
• COV 20/02: variation to section EI 1 of the Income Tax Act 2007
• COV 20/03: variation of the application of s 15D(2) Goods and Services Tax Act 1985 to extend time to make an application to change GST taxable period
• COV 20/04: variation in relation to s DB 31 Income Tax Act 2007 to extend time for writing off bad debts
• COV 20/05: variation in relation to s RP 17B(4) of the Income Tax Act 2007 to extend time for tax pooling transfers, and
• COV 20/06: variation in relation to section EI 1 of the Income Tax Act 2007.

Small Business Cashflow Scheme

The Commissioner has been authorised to grant loans under the Small Business Cashflow Scheme and to administer the scheme on behalf of the Government. The amendments:

• provide that the Commissioner’s decision to grant or decline to grant a loan under the scheme is not a disputable decision for the purposes of the Tax Administration Act 1994
• enable information sharing between Inland Revenue and the Ministry of Social Development for the purposes of the administration of the loan scheme
• permit Inland Revenue to use existing care and management, and debt management provisions in administering the scheme
• ensure that interest under the loan is not subject to resident withholding tax
• ensure that if the loan was converted to a grant at any stage this would not create any tax issues for the recipient, and
• ensure that loan amounts are not counted as income for Working for Families.

Tax treatment of payments to New Zealanders stranded overseas

The Ministry of Social Development has established the COVID-19 New Zealanders Stranded Overseas Support welfare programme for beneficiaries and superannuitants stranded overseas as a result of COVID-19.

The legislation includes a measure ensuring that benefit and pension equivalent payments paid through this programme to people stranded overseas because of COVID-19 are subject to the same tax treatment, Working for Families entitlements, and student loan and child support obligations that apply for their normal benefit, pension or supplementary assistance payment.

Source document: Inland Revenue

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