- Temporary Tax loss carry-back scheme
- Changes to tax loss continuity rules
- Further business consultancy support
- Flexibility in tax obligations
- Support for commercial tenants and landlords
Temporary Tax loss carry-back scheme
If your business is expecting to make a loss in 31 March 2021 financial year, you can estimate the loss and use it to offset against the profit for the 31 March 2020 financial year.
Example:
Taxable profit for year 2019/2020 $100,000
Provisional tax payments – Aug 2019 $9,333 (paid), Jan 2020 $9,333 (paid) i.e. total provisional taxes already paid is $18,666.67.
Projected loss for March 2021 tax year is say $60,000. This can be offset against the March 2020 taxable profit thus reducing the profit to $40,000.
Tax on this revised profit of $40,000 will be $11,200. Provisional tax of $18,666.67 was already paid therefore you are now eligible for a tax refund of $7,466.67.
The 3rd provisional tax due on 7th May 2020 is no longer payable in this example.
Word of caution
You may have to prepare some detailed projection to show that there will be a projected loss for the March 2021 tax year. The policy department of the IRD is working on this bill and it is anticipated that it will be introduced the week of the 27th April.
Tax loss continuity rules
The Government proposes relaxing the tax loss continuity rules. It 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.
The introduction of 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 modeled on Australia’s rules.
Further Business consultancy support
More tailored support ranging from human resources advice to business continuity planning and financial management will be available and funded through the current services – Regional Business Partner Network and helplines such as the Employers and Manufacturers Association.
Flexibility in tax obligations
IRD will be given discretion to temporarily change dates, timeframes and procedural timeframes and will publish these in the next few weeks.
Support for commercial property transactions
Extension of timeframes before landlords can cancel leases from the current 10 working day timeframe to 30 working days, for both the period the tenant is in arrears before the notice is given and for the period to remedy the breach.
For commercial mortgages and home loans, timeframes for lenders are extended from 20 to 40 working days for mortgaged land, and from 10 to 20 working days for mortgaged goods.
Legislation enacting the changes announced today will be introduced on April 27 and will apply effectively retrospectively once the bill is passed.
