HortNZ - Business cash flow and tax measures - Horticulture ...

HortNZ - Business cash flow and tax measures
Small Business Cashflow Loan Scheme
This scheme provides a one-off loan with a term of 5 years to organisations and small to medium
businesses (including sole traders and self-employed) who have had a 30% loss of actual or predicted
revenue due to COVID-19. They must have 50 or fewer full-time-equivalent employees.

The maximum amount loaned is $10,000 plus $1,800 per full-time-equivalent employee. The annual
interest rate will be 3% beginning from the date of the loan being provided. Interest will not be
charged if the loan is fully paid back within one year. Inland Revenue (IRD) will administer the
payments and repayments of this scheme. Applications are open from 12 May 2020 to 12 June 2020
inclusive.

The eligibility criteria is the same as for the Wage Subsidy Scheme and businesses will also have to
declare that they are a viable, they will use the money for core business operating costs, and enter
into a legally binding loan contract.

More information on the loan, including eligibility criteria is available at:
https://www.ird.govt.nz/covid-19/business-and-organisations/small-business-cash-flow-loan

COVID-19 financial support tool
The tool will take you, step by step, through a series of questions to find out what financial help may
be available to you. Employers, employees, self-employed and people who have lost their job due to
COVID-19 can all use this tool. Go to: https://covid19.govt.nz/latest-updates/new-covid-19-
financial-support-tool-available/

New helpline for businesses
There is now a free helpline service for all New Zealand businesses. It can offer:
    • specific advice and access to Government-funded business support
    • advice on what Alert Level 3 means for your business
    • general business advice and access to online resources and webinars
    • connections to business advisory services
    • HR, employee relations, and health and safety advice.
To find out more call 0800 500 362 (North Island), or 0800 50 50 96 (South Island).

Covid-19 Business Advisory Fund
Businesses with less than 100 employees (FTE) can access up to $5000 excl.GST per business to use
with a variety of providers for support with tailored specialist advice in areas such as HR, health and
wellbeing, business continuity, cashflow and finance management, strategy and digital capability.

For further information and to register go to the Regional Business Partner Network:
https://covid19.nzte.govt.nz/page/regional-business-partner-network/

Income equalisation scheme – class of case deposits
IRD are able to accept later deposits to the income equalisation scheme. For farmers, fishers and
growers whose current or future income will be significantly affected by the impacts of Covid-19
they’ll allow class of case late deposits for the 2019 income tax year up to 30 June 2020 regardless of
when the 2019 return is filed or what the due date is for filing the tax return. The quantum of the

deposit is limited to the net income from agricultural activities for the 2018-2019 income tax year.
Find out more on this at: https://www.ird.govt.nz/covid-19/business-and-organisations/income-
equalisation-assistance-for-farmers-fishers-and-growers

Greater flexibility for statutory tax deadlines
Inland Revenue will be given greater flexibility to modify timeframes or procedural requirements for
taxpayers who are impacted by COVID-19. An amendment will introduce a discretionary power into
the Tax Administration Act 1994 to allow IRD to provide an extension to due dates and timeframes,
or to modify procedural requirements set out in the Revenue Acts. This could include, for example,
extending deadlines for filing tax returns and paying provisional and terminal tax.

At this stage, the power will be time-limited for a period of 18 months and will apply to businesses
affected by COVID-19.

Tax loss carry-back scheme
This announcement would allow for the carry-back of tax losses. A loss carry-back mechanism
enables a firm to offset a loss in a particular tax year against a profit in a previous year, and receive a
refund of the tax paid in the previous profitable year. The proposed mechanism will provide cash to
firms that are, or anticipate, being in loss. The proposal is that it is introduced in two phases.

Phase 1 is a temporary mechanism for the 2019/20 & 2020/21 tax years with legislation to be
included in a bill introduced the week of 27 April 2020. Phase 2 is proposed as a permanent
application for future years subject to detailed design and consultation in the second-half of 2020.

Phase 1: Temporary loss carry-back scheme
Businesses expecting to make a loss in either the 2019/20 year or the 2020/21 year would be able to
estimate the loss and use it to offset profits in the past year. In other words, they could carry the loss
back one year.

This change means IRD could refund some or all the tax already paid for the year they were in profit.
It means firms could cash out all or some of their losses in 2019/20 or 2020/21. Without this change,
firms would have to carry forward any loss to a year when they make a profit.

Taxpayers do not need to rush to re-estimate their provisional tax before 7 May. Part of the
proposed law change would make it possible for them to re-estimate it after the date of the final
instalment. This will give them more time to work out any estimated loss for the 2020/21 income
year.

For further information refer to: https://www.ird.govt.nz/covid-19/latest-policy-initiatives/tax-loss-
carry-back-scheme

Changes to the tax loss continuity rules
An in-principle announcement gives taxpayers raising capital a level of certainty to undertake these
transactions, while also giving officials time to work through the detailed design of rules that can be
included in a bill in the second half of 2020. The Government intends passing legislation before the
end of March 2021, and for it to apply to the 2020/21 and later income years.

Currently, if a company has more than a 51% change in ownership it cannot keep its tax losses.
Introducing a ‘same or similar business’ test means a business could carry forward losses. To meet

the test, the business must continue in the same or a similar way it did before ownership changed.
This test is modelled on Australia’s 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 rules will
ensure companies in this position could carry losses forward to offset income when they return to
profit. Being able to carry forward losses makes the business more valuable to investors. The rules
should improve access to capital for businesses.

For further information refer to: https://www.ird.govt.nz/covid-19/latest-policy-initiatives/changes-
to-the-tax-loss-continuity-rules

Commercial leases and mortgages
The Government has announced its intention to put in place some temporary law changes to
support tenants and landlords during Covid-19 and to make it easier to retain lease arrangements
and get back to business as usual after the epidemic. Changes relating to leases will apply to
commercial tenants and their landlords. The changes relating to mortgages will apply to all
mortgages, including residential and commercial. However, we anticipate that mortgage holidays
are likely to be the first port of call for residential borrowers.

Further information is available here: https://www.justice.govt.nz/about/news-and-media/covid-19-
news/guidance-for-commercial-property-settlements/

Business Finance Guarantee
Businesses can start applying to their banks for loans under the Business Finance Guarantee Scheme
set up to support the New Zealand economy during the COVID-19 pandemic.

Under the scheme, businesses with annual revenue between $250,000 and $80 million can apply to
their banks for loans up to $500,000, for up to three years. The scheme will offer a total of $6.25
billion in loans to New Zealand businesses.

The Government is guaranteeing 80% of the risk, while the banks are covering the remaining 20%. A
normal lending process will be followed by the banks, which will make the lending decisions. Further
details can be found on the banks’ websites.

Financial support package includes a 6-month principal and interest payment holiday for mortgage
holders and SME customers whose incomes have been affected by the economic disruption from
COVID-19. Businesses need to talk with their banks.

More information on financial support available on:https://covid19.govt.nz/government-
actions/financial-support/

Business cash flow and tax measures include:
    • increasing the provisional tax threshold from $2,500 to $5,000 from 2020/2021
    • increasing the small asset depreciation threshold from $500 to $1,000 — and to $5,000 for
       the 2020/21 tax year
    • allowing depreciation on commercial and industrial buildings from 2020/2021
    • removing the hours test from the In-Work Tax Credit (IWTC) from 1 July 2020.
    • Giving Inland Revenue the discretion to remit use-of-money interest (UOMI) for customers
       significantly adversely affected by COVID-19.

Other Tax relief
https://www.ird.govt.nz/covid-19-novel-coronavirus/tax-relief/tax-relief-for-businesses

https://www.ird.govt.nz/covid-19-novel-coronavirus/tax-relief

Tax payment relief options include:

    •   Re-estimating provisional tax (the third instalment for 2020 is due 7 May 2020). IRD advise
        they will arrange early refunds if provisional tax has been overpaid.
    •   If you’re having difficulty paying outstanding tax, you can set up an instalment arrangement.
        You can apply in myIR or contact your accountant.
    •   You can also apply for a write-off due to serious hardship when you know you won’t be able
        to pay the full amount.
    •   Extensions to filing dates for some income tax returns may be available. Extensions can’t be
        granted for GST and PAYE returns, but any penalties for late filing may be remitted. Under
        limited circumstances penalties for late payments incurred due to the effects of the COVID-
        19 may also be remitted.
    •   If you’re currently involved in contract work where schedular payments are to be deducted,
        such as forestry or bush work of all kinds, fishing boat work for profit-share, you may be
        entitled to a certificate of exemption.
    •   Tax purchases using a third party tax intermediary allows tax payments to be spread and/or
        delayed without incurring late payment penalties.

Following are some Q&A’s from IRD regarding Tax:

QIs the wage subsidy payment subject to GST?
ANo – An Order in Council is being drafted to treat it as exempt (Section 5(6E)(B)(iii GST Act)

QIs the wage subsidy paid to the employer taxable?
ANo- It is excluded income (Section CX 47 ITA).

Q Is the wage subsidy deductible when paid by employer as part of wages to employee?
ANo – it is not deductible

QIs the wage subsidy taxable to employee?
Yes – As it is included as part of their normal wages it is subject to the usual PAYE, Student
Loan, Kiwisaver deductions, etc.

QIs the leave payment for self-isolation subject to GST?
ANo – An Order in Council is being drafted to treat it as exempt (Section 5(6E)(B)(iii GST Act)

QIs the leave payment for self-isolation paid to employees or self-employed persons subject to
tax?
Yes – It is paid to replace taxable income so is subject to tax.

Income tax – subsidy paid to sole trader, shareholder-employee, partner etc
Where the amount goes directly to a person responsible for their own taxes, the amount is taxable
income.

Q: How does Holiday Pay Accrual work during the lock down period?

A: Holiday pay accrual works as normal, accumulating for permanent part time or full- time
employees, and on “a pay as you go” basis for casual and fixed term employees, as per the usual pay
run over the lockdown period.

Please note all wage payments are to be processed as per usual via the subsidy (up to 80%) with 8%
holiday pay generating off that payment. Nothing has changed in how weekly wages, deductions and
mandatory statutory entitlements are to be processed, paid, deducted and accumulated as per
normal, including all deductions of PAYE, Kiwisaver, Student Loans and child support payments.
Employers are required to continue to pay the employer contribution during lock down.

Q: Do we unclick Kiwisaver and annual leave and Paye?

A: The normal deductions still apply. The wage subsidy is to help employers pay wages; it does not
change anything else.

Q: Can employees put student loans on hold?

 A: If you’re struggling to make your student loans payments, we might be able to reduce your
 repayment obligations. Alternatively, you can propose an instalment arrangement to suit your
 situation. You can also apply for a student loan repayment deduction exemption if you’re New
 Zealand based and:
• are studying full-time, or about to start studying
• will reasonably expect to earn under the annual repayment threshold.
 Find more information on the IRD website:
• https://www.ird.govt.nz/student-loans/managing-my-student-loan/hardship-and-defaulting-on-
    my-student-loan
• https://www.ird.govt.nz/student-loans/repaying-my-student-loan/repaying-my-student-loan-
    when-i-earn-salary-or-wages/student-loan-repayment-deduction-exemption

Q: Can an employee request to have their Kiwisaver contributions suspended?

A: Yes, an employee can apply for a savings suspension through MyIR: Select the Kiwisaver account
tile; Select the Go to My Kiwisaver: at the top left of the page; Select Savings Suspension and
complete the required information and submit the request.

Q: Are there any tax consequences if an employer pays the 12-week wage subsidy as a single
lump-sum to their employees?

A: Paying the 12-week subsidy to an employee as a lump sum brings up to 12 weeks of income, that
would normally be earned in the next tax year, into this tax year (which ends on 31 March 2020).
The additional income could move them into a higher marginal tax bracket for the year and result in
them receiving a tax bill when Inland Revenue completes the automatic assessment process; if, as a
result of receiving the additional income, their total gross income for the year exceeds $48,000 they
will no longer qualify for the Independent Earner Tax Credit; It may also impact their entitlement to
Working for Families Tax Credits, or mean they have a higher Student Loan bill this year.

And from Work & Income:

Shareholder employee wage subsidy goes to the company
There are two potential options here:
   • The amount is excluded income to the company and treated as drawings to the
       shareholder employee; or
   • The amount is treated as taxable income to the company but passed out to the
       shareholder as part of the shareholder salary.

IRD 31st March update:
Inland Revenue will write-off any penalties and interest for businesses unable to pay taxes
on time due to the impact of COVID-19. Don’t worry about contacting them right now. Get
in touch with them when you can.
IRD is also enabling more flexibility and lowering the threshold for instalment arrangements
set up in myIR. The new minimum repayment rates are: - Weekly $20 (previously $50). -
Fortnightly $40 (previously $100) - Monthly $80 (previously $200).
https://www.media.ird.govt.nz/articles/covid-19-and-tax-matters-guidance-for-businesses-and-tax-
agents/

What options does an employer have if an employee wants to voluntarily self-isolate?
    There are a few options to consider:

•   Working from home: If the employee is not sick, but able and willing to work, then
    employers should consider allowing the employee to work from home.
•   Leave options: If, because of the nature of the position, this is not possible there are
    various leave options, including sick leave or advanced sick leave (although technically
    they are not entitled to this as they are not sick). If sick leave is not an option, consider
    annual leave or leave without pay.
•   Require a return to work: If either working from home or taking paid or unpaid leave is
    not an option, then the employer can require the employee to return to work (if the
    employee is not sick, and is able to work).
•   Disciplinary action: If the employee refuses to return to work, and there are no
    reasonable reasons for the refusal, as a last resort, employers may be within their strict
    legal rights to take disciplinary action.

    From https://www.simpsongrierson.com/articles/2020/covid-19-legal-faqs#_ftn6

Updated 12.05.20 KO