The government announced further significant changes to the tax system to provide further support for businesses impacted by the COVID-19 pandemic.
The key tax measures include:
Tax loss carry-back scheme
Allow businesses to transfer losses derived in the 2019/2020 year or the 2020/2021 year back one year to reduce profits in the prior year. This would then allow the business to request a refund of tax paid for that particular prior year.Businesses will need to determine their financial performance for the 2019/2020 year and if there are losses, these can then be transferred back to reduce profits made for the 2018/2019 year, which in turn will reduce the tax due on the revised profit. Any tax overpaid following the revision of the 2019 tax liability will then be refunded.
The government has noted that the loss carry back scheme will allow businesses to carry back losses derived for the 2020/2021 year back to reduce profits for the 2019/2020 year. This is important as the third provisional tax instalment the 2019/2020 year is due for payment on 7 May (for 31 March balance dates). Given that we have only just commenced this financial year, businesses will not know whether they have a loss at this point. To counter this, the government has stated that businesses can make an estimate of their potential losses and then use the estimated losses to reduce profit for the 2019/2020 year and so potentially reducing the tax payment due on 7 May 2020.
The government will consult with tax advisors to ensure the law and administrative guidance regarding the carry-back of tax losses is as clear as possible.
Permanent loss carry-back scheme
The government has also proposed a permanent loss carry-back scheme, this will apply from the 2021/22 and later income years. Again, the government are intending to conduct public consultation about the proposed measure in the second half of 2020.
Changes to tax loss continuity rules
The government is proposing to relax the tax loss continuity rule. The new rule will apply to the 2020/21 year and later income years.
The current rule states that if a company has more than a 51% change in ownership it cannot retain its tax losses.
The proposal will mean that tax losses will be permitted to be carried forward, irrespective of shareholder changes, providing the company carries on in business as it did prior to the shareholder change (a “same or similar business” test). This test is modelled on Australia’s tax loss continuity rules.
Some companies will be looking to raise capital to keep afloat now and to recover in the future. Raising capital may result in a change to the existing shareholder structure. Relaxing the rule will ensure companies in this position could carry losses forward to offset income when they return to profit.
Allowing Inland Revenue to change due dates
The government proposes giving Inland Revenue discretion to temporarily change due dates, timeframes and procedural requirements outlined in a number of Acts administered by them.
This provision will only apply to businesses and individuals affected by COVID-19.
The proposed tax changes noted above are intended to be legislated under urgency as soon as Parliament can resume (currently scheduled for the week beginning 27 April 2020).
Measures to support commercial tenants, landlords and lenders
The government will extend the timeframe that commercial landlords may cancel a lease and lenders can exercise their rights of repossession.
The period after which landlords are able to cancel a lease has been extended from 10 to 30 working days and the timeframe for lenders to repossess property from 20 to 40 working days and repossess goods from 10 to 20 working days.
Business consultancy support
Businesses will be able to access free specialist support designed to help them deal with the issues that they are facing, such as business continuity planning, finance and cash flow management, HR and staffing issues and sector specific issues.
The support services will be able to be accessed via The Regional Business Partner Network, The Employers and Manufacturers Association and the Canterbury Chamber of Commerce.
We have also attached a factsheet that provides further details and examples.