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Government announces additional measures to support small business

posted on

15 April, 2020

The Government has announced new measures aimed to provide relief for small and medium-sized businesses during the COVID-19 pandemic.

Announced by Finance Minister, Grant Robertson, the new measures include:

  • Greater flexibility for affected businesses affected to meet their tax obligations
  • Measures to support commercial tenants and landlords
  • $3.1 billion tax loss carry-back scheme (estimated cost over the next two years)
  • $60 million estimated annual savings to business each year from changes to the tax loss continuity rules
  • $25 million in the next 12 months for further business consultancy support

Grant Robertson says the new measures aim to cushion the blow for businesses and workers and to help businesses to stay solvent with the economic recovery as we emerge from this crisis.

While we consider that the latest announcements inadequately address some of the real challenges for small businesses and do not provide the actions many of our members were hoping to see, we outline some of the new measures announced today and what they mean for business, below:


1. Greater flexibility for business taxpayers in respect of statutory tax deadlines

Inland Revenue will be given greater flexibility to modify timeframes or procedural requirements for taxpayers. An amendment to the Tax Administration Act 1994 will allow Inland Revenue to provide an extension to due dates and timeframes, or to modify procedural requirements set out in the Revenue Acts.

This could include: 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.

2. Measures to support commercial tenants and landlords

The Government have indicated that they are extending the timeframes required before landlords can cancel leases and mortgagees can exercise their rights to sale or repossession.

The Government will extend the current 10 working day timeframe that commercial landlords may cancel a lease, to 30 working days. This will be for both the period the tenant is in arrears before the notice is given, and for the period to remedy the breach.

While these changes still allow landlords to cancel leases and mortgagees to exercise their powers during the period that an epidemic notice is in force, they do allow for more time for breaches or defaults to be remedied.

3. A tax loss carry-back scheme

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.

Loss carry-back example: Wiki Wiki Hospitality Limited (Wiki) has had a profitable year for the year ended 31 March 2020. It has not yet finalised its tax return, but it is expected to return $2m net income. Its final provisional tax payment for the expected $2m income is coming up on May 7, where it expects to pay $250,000 in tax (it has already paid $310,000 in early provisional tax instalments).

However, because of COVID-19, it is not operating at the moment, and does not know when it will be allowed to resume operating. It is still paying its staff (supported by the wage subsidy scheme) and rent. It seems inevitable that it will make a loss in the year ended 31 March 2021. In early May, the directors meet with the CFO and forecast some scenarios. In all the scenarios, Wiki will make a loss of $1.5m for the year-ended 31 March 2021, although some scenarios sees it making a $2m loss.

Knowing it will face use-of-money-interest charges if it over-estimates its loss, Wiki decides to carry-back the more certain loss of $1.5m to the 2019/20 year, and re-estimate its income for that year to $500,000 (down from $2m). Because it has already paid $310,000 in tax, it pays nothing on May 7, and receives a refund of $170,000 from its earlier provisional tax payment. In short, for the 2019/20 year, Wiki returns $500,000 of income and pays $140,000 tax, receiving back its earlier payments as refunds.

4. Changes to the tax loss continuity rules

New Zealand’s current rules are amongst the most stringent in the world, but at this time businesses may need to raise additional capital to remain afloat. By changing the tax loss continuity rules it will make it easier for firms to raise new capital without losing the benefit of their existing tax losses.

The detail of these continuity rules changes will be included in a bill in the second half of 2020. The new rules will apply for the 2020-21 and later income years.

Tax loss continuity example: A start-up firm, Conference in the Clouds Limited (CIC) offers microphone and webcam software. It has been making large losses in recent years. However, it now wants to scale up significantly, given that more people are working from home and using videoconferencing.

Despite its promising early-development software, banks are unwilling to lend to CIC without it having a firm revenue base. CIC has approached several investors, and has received an offer from a video conferencing company, Cloudcon Limited (Cloudcon), to inject millions of dollars into CIC in return for a 75% stake in the business. CIC wants to accept the investment, but is wary of losing the value of its losses, which would be extinguished under the current shareholder continuity test.

The government’s new ‘same or similar business’ test ensures that CIC can take on the new investor without losing its losses because its business will be of a same or similar nature as the business it was carrying on when it made the losses. Given this, the price CIC’s owners receive for the 75% equity stake is higher (the business receives a greater capital injection) as the ability to carry forward losses makes the business more valuable to investors.


Download the fact sheet on today’s measures here.

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