Tax reform measures included as part of Business Continuity Package
The New Zealand Government has announced a substantial $12.1billion business continuity package aimed at assisting businesses through the COVID-19 situation.
The largest element of the package is the delivery of $5.1billion in wage subsidies to businesses (valued at up to $150,000 per business) and the delivery of support for workers needing to self-isolate, delivered through the Ministry of Social Development.
Included within the package were four specific tax initiatives which will provide some relief to taxpayers. These announcements are:
- The ability to take an immediate deduction for any assets costing $5,000 or less in the 220/21 income year (beginning 1 April 2020 for standard balance date taxpayers); this threshold will reduce to $1,000 in the 2021/22 income year (noting the current threshold is $500).
- Reintroduction of depreciation on commercial and industrial buildings at the rate of 2% from the 2020/21 income year (beginning 1 April 2020 for standard balance date taxpayers).
- Ability to apply for use of money interest write-offs for tax debts post 14 February 2020, if they are due to COVID-19.
- Increase in the threshold before provisional tax applies from $2,500 to $5,000 from the 2020/21 income year.
Low-value asset write-off
The ability for businesses to claim immediate deductions for low-value assets up to the value of $5,000 will be a welcome incentive to invest in assets.
Reintroduction of building depreciation
Most buildings have not been eligible for tax depreciation since 2011; however with effect from the 2020/21 income year, certain buildings will once again be able to be depreciated using the diminishing value method at a rate of 2 per cent per annum. This will be available for commercial and industrial buildings (including hotels and motels), but not residential buildings.
Use of money interest changes
Businesses who have found themselves making tax payments late as a result of being “significantly adversely impacted by COVID-19” will be able to apply to Inland Revenue to have any use of money interest on late tax payments remitted by Inland Revenue.
Provisional tax rules
Currently, any taxpayer with a residual income tax liability (essentially income which is not correctly taxed at source) of $2,500 is required to pay provisional tax. This puts compliance costs on taxpayers who have relatively modest tax liabilities. From the 2020/21 income year this threshold will be increased to $5,000.
Other tax consequences
Businesses who are in receipt of wage subsidy scheme payments and COVID-19 leave and self-isolation leave will need to consider the tax treatment of the subsidies.