May | 2020 Issue no: 10
Kia ora koutou,
Recently the Government announced more tax changes to assist NZ businesses to manage the impacts of COVID-19. Legislation has now been passed to bring some of these changes into effect.
The Loss carry-back scheme and new discretion to vary requirement which we cover in more detail in this email.
The COVID-19 Small Business Cashflow Scheme (SBCS), where small to medium business owners, including sole traders and the self-employed, may be eligible for a oneoff loan if they have been adversely affected by COVID-19. We will update you with more details next week. You can also keep an eye on our website at www.ird.govt.nz/covid19
In this update we will also tell you about a new working from home determination.
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.
There are two ways to claim your loss carry-back:
- Include the carried-back loss in your tax return – we will automatically refund any overpaid tax
- Ask for a refund of any provisional tax you have paid for 2020 if you are going to carry back a loss from 2021Note, that these loss carry-back refunds will be paid out to the bank account we have on record, including to where there are redirects in place. They will not be offset against other debt your clients may have due (except debt for income tax in the same period). So please continue to help your clients who have any other payments due - the usual payment options are available.Refunds will be processed quicker for claims made through myIR. Log in or register for a myIR account today.By when do I need to re-estimate my provisional tax?
- You and your clients can re-estimate their provisional tax as many times as needed as long as you do so before the tax return for the year is filed or due, whichever is earlier.
- Note that your clients do not need to have filed the loss year return to claim the loss carry-back.
- If your clients choose to use the loss carry-back scheme they (or you on their behalf) must first elect to participate in the scheme under the ‘I want to’ section of myIR.
- We can refund some or all of the tax already paid for the preceding year before the loss year has finished by enabling customers to estimate their loss. Refunds will be processed a lot faster if you use myIR.
Subvention payments, profits paid as shareholder-employee salaries or dividends
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 impacted by a 2020 loss carried-back claim
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 shareholdersalary. Any overpaid provisional tax will be refunded.
Shareholder-employees must let us 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 3rd provisional tax instalment date.
Note, we’ll also be letting business customers know about these changes so they may also contact you.
New discretion to vary requirement
To help customers manage the impacts of COVID-19, Inland Revenue now has a discretion to vary a requirement when it would be impossible, impractical or unreasonable to comply as a consequence of COVID-19. Under this new discretion, we can extend a due date, deadline, time period or timeframe. It is also possible to modify a procedural or administrative requirement, such as the way that something must be done. In the next couple of days we anticipate we’ll have some decisions available on the website where we have already applied this discretion.
We’ll let you know when any change is made through our website and other communication channels as appropriate.
Working from home determination
Inland Revenue has issued a new determination which means 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 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 March 17 and September 17 2020.
This determination is not intended to suggest that employers must make such payments to staff who were working from home.
Please ensure this information is shared with your colleagues.