Inland Revenue update for businesses impacted by COVID-19
On 4 May 2020, Inland Revenue issued an update for businesses about the recent tax changes to assist New Zealand businesses to manage the impacts of COVID-19. In particular, the update refers to the changes relating to the temporary tax loss carry-back scheme and the Commissioner’s new discretion to vary a requirement under an Inland Revenue Act. These changes were enacted on 30 April 2020 by the COVID-19 Response (Taxation and Other Regulatory Urgent Measures) Act 2020.
This legislation also enacted the COVID-19 Small Business Cashflow Scheme where small to medium business owners, including sole traders and the self-employed may be eligible for a one-off loan if they have been adversely affected by COVID-19. Inland Revenue will provide an update with more details next week.
Temporary loss carry-back scheme
Businesses expecting to make a loss in either the 2020 year or the 2021 year can use that loss to offset profits they made the year before. In other words, they can carry the loss back one year to the preceding income year. This can be done before the loss year return is filed.
The two ways to claim the loss carry-back are as follows:
- Include the carried-back loss in your tax return – Inland Revenue will automatically refund any overpaid tax:
- Ask for a refund of any provisional tax paid for 2020 if you are going to carry back a loss from 2021.
Inland Revenue can refund some or all of the tax already paid for the preceding year before the loss year has finished by enabling taxpayers to estimate their loss. Refunds will be processed faster if myIR is used.
If taxpayers choose to use the loss carry-back scheme, they must first elect to participate in the scheme under the “I want to” section of myIR. Refunds will be processed quicker for claims made through myIR. Log in or register for a myIR account. Note that taxpayers do not need to have filed the loss year return to claim the loss carry-back.
Taxpayers can re-estimate their provisional tax as many times as they need to as long as they do so before the tax return for the year is filed or due, whichever is earlier.
The following situations cannot be reversed to take advantage of a loss carry-back:
- company profits that have been paid out as a dividend or shareholder-employee salary in the preceding year:
- a subvention payment made in a preceding year.
Shareholder-employees who have paid provisional tax on the basis they would receive a shareholder salary in the 2020 year may re-estimate their provisional tax if their company is going to claim a loss carry-back in 2020 which will reduce their shareholder-salary. Any overpaid provisional tax will be refunded.
Shareholder-employees must let Inland Revenue know they are going to re-estimate their provisional tax because of a loss carry-back by using the opt-in service in myIR (in the “I want to” section of your income tax account in myIR account). They can then re-estimate their provisional tax up to the time their 2020 return is due or filed. In all other situations the last day for a provisional tax estimation is the third provisional tax instalment date.
For more information on how to claim a loss carry-back go to www.ird.govt.nz/claim-loss-carry-back.
New discretion to vary a requirement under an Inland Revenue Act
To help taxpayers manage the impacts of COVID-19, the Commissioner now has a discretion to vary a requirement under an Inland Revenue Act when it would be impossible, impractical or unreasonable for a customer to comply as a consequence of COVID-19. Under this new discretion, the Commissioner can extend a due date, deadline, time period or timeframe. The Commissioner can also modify a procedural or administrative requirement, such as the way that something must be done.
This discretion is only available when an appropriate outcome is not possible or is difficult under the terms of an existing provision in the Inland Revenue Acts.
Inland Revenue will publish a variation made under the new discretion on its website. This variation will apply to all taxpayers, unless Inland Revenue specifies that it only applies to a limited group of customers or circumstances. As the variation will be favourable to taxpayers, it will be applied automatically to the relevant taxpayers unless a taxpayer chooses not to apply it. A customer can make that election by taking a tax position, such as in a tax return, or by informing the Commissioner.
Working from home determination
Inland Revenue has issued a new determination, EE002: “Payments to employees for working from home costs during the COVID-19 pandemic”. This determination provides that employers can pay employees, who are working from home, up to $20 a week tax-free for expenses such as additional heating costs, without having to estimate or show what the employee’s actual expenses were.
Employers can also now make a tax-free payment of up to $400 per employee for furniture or equipment costs, without having to work out actual expenses.
The determination is a temporary response to the COVID-19 pandemic and only applies to payments for expenses incurred between 17 March and 17 September 2020. The determination is not intended to suggest that employers must make such payments to staff who were working from home.
For more information, visit Inland Revenue’s website at www.ird.govt.nz/covid19.
Source document: Inland Revenue
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