Newsletter April 2020
TAX CALENDAR
May 7
GST returns and payments for period ending 31 March. Provisional tax payments for standard balance dates, being 31 March.
May 28
GST returns and payments for period ending 30 April
INSOLVENCY RELIEF FOR BUSINESSES IMPACTED BY COVID-19
On 3 April the Government announced that it will be introducing legislation to make changes to the Companies Act to help businesses remain viable if they are facing insolvency due to COVID-19.
The temporary measures will include:
- Giving directors of companies facing significant liquidity problems due to COVID-19 a ‘safe harbour’ from insolvency duties under the Companies Act. As directors can be held personally liable when companies trade insolvently, the safe harbour will enable them to keep trading without a fear of claims against them personally rather than closing a business prematurely.
- Enabling businesses affected by COVID-19 to place existing debts into hibernation, referred to as Business Debt Hibernation (BDH) until they are able to start trading normally again. BDH will only be available with the agreement of 50% of business creditors. This measure will allow businesses to prioritise repayment of some creditors and defer others for six months. It should however be noted that creditors are not compelled to accept the deferral so obtaining agreement of 50% of creditors may be challenging.
- Allowing the use of electronic signatures where necessary due to COVID-19 restrictions
- Giving the Registrar of Companies the power to temporarily extend deadlines imposed on companies, incorporated societies, charitable trusts and other entities under legislation
- Giving temporary relief for entities that are unable to comply with requirements in their constitutions or rules because of COVID-19.
The purpose of these measures is to soften the economic impact for New Zealand businesses and protect jobs and incomes.
Whilst these measures will help increase certainty and provide practical assistance to business owners and directors, these measures are not to be seen as a workaround around obligations towards creditors as directors still have the duty to act in good faith. The Companies Act contains measures which address serious breaches of the duty to act in good faith and punishing those who dishonestly incur debts. As Grant Robertson said these measures will remain in place.
The cabinet paper can be accessed from this link
DID YOU KNOW?
MEASURES AVAILABLE TO YOU IF YOU ARE UNABLE TO PAY TAXES
If your business is facing financial difficulty due to COVID-19, you may want to take advantage of IRD’s ability to write off Use of Money Interest and penalties on payments that fell due on or after 14 February 2020. An application for remission will need to be made, as it is not automatic. This write off will be available once the core tax has been paid in full and it will be available to 25 March 2022.
And if you are unable to pay your taxes due to COVID-19 you may, depending on your circumstances, consider the following:
- entering into a payment arrangement with IRD;
- a partial write-off of the tax debt due to serious hardship, with payment of the remaining tax by instalment or a lump sum;
- a partial payment, and write-off the balance;
- write-off the entire debt due to serious hardship.
Whilst these will be considered on a case by case basis, given the current economic climate the IRD is more likely to consider and grant such relief.
IRD IS DOING AN UPGRADE
Inland Revenue (IR) are upgrading some of their services from 3pm 9 April to 16 April 2020. During this time certain services will not be available such as automatic IRD registrations at the time of company incorporation. These registrations will be delayed until the IRD online services resume.
RWT TAX EXEMPTION REGISTER
IRD introduced a new online register that lists all taxpayers who hold a valid exemption from having RWT deducted from their interest and dividend income that they receive. From 01 April financial institutions and payers of investment income are able to access this system. They will no longer require tax payers to produce the RWT exemption certificates. This is a welcome change as the physical certificates can be misplaced.
There is also good news for charities that are registered with the Charities Commission as they will no longer need to apply for the exemption, they will be put on the register automatically.
Further information and register can be accessed from this link
RESEARCH & DEVELOPMENT TAX INCENTIVE WEBSITE
In February the Research and Development Tax Incentive website (website) was launched to assist businesses with their understanding of benefits that are available to them when undertaking research and development.
The website provides good understanding of the Research & Development Framework and contains useful guides. This website can be accessed through the following link.
RWT RATE
If you do not provide RWT rate to your bank or financial institution the new non-declaration rate of 45% will be applied on interest income.
CHANGE OF BANK ACCOUNTS
When adding a bank account in myIR or making a payment through myIR a direct debit authority will need to be set up before you can add a new bank account. We find this preposterous as this gives IRD authority to deduct funds from your bank account if you owe money to them.
Bottom line is: Do not add or change bank accounts after 31 March 2020 and do not make payments through myIR.
FBT RATE DECREASE
The prescribed rate to calculate fringe benefit tax on low-interest, employment-related loans has decreased from 5.77% to 5.26% effective 1 October 2019. It is a good time to review employment related loans so that correct interest is charged.
OTHER MATTERS
WILLS
There is no doubt that COVID- 19 brought fears to many and that many of us or our families living across the globe have been directly or indirectly affected by this global tragedy. Whilst the situation in New Zealand is looking optimistic when compared to other parts of the world one must not forget that human life is fragile with or without COVID-19.
This may be a good time to consider your circumstances and to review and update your wills so as to ensure that your loved ones will be looked after in accordance with your wishes as one never knows what lies around the corner.
FAMILY TRUSTS
In the event that you have a Family Trust you may wish to review the terms of the Trust to ensure that it is still fit for purpose as many trusts have been established a long time ago when circumstances were different. Also, with the New Trustees Act coming into effect in January 2021 it is prudent to act early to have your Trust Deeds reviewed to ensure that your Trust Deed will comply with the new requirements and where modifications are required that they will be made before the new act takes effect. We will gladly assist with this review process.
LTC AND REMISSION INCOME
Recently the Officials were asked a question as to whether a look through company (LTC) derives remission income, when a close friend or a family member of the shareholder forgives a loan made to the LTC.
The IRD’s position is that no remission income arises to the LTC under s EW46C of Income Tax Act if the shareholder of the LTC and the close friend or a family member have natural love and affection for each other.
REQUESTING RELIEF FROM UOMI & PENALTIES DUE TO COVID-19
Whilst remission of penalties and UOMI is available upon meeting certain criteria, the taxpayers who are able to make payments are urged to do so on time as the remission will only be available to those who have been significantly affected by COVID-19.
Whilst every taxpayer’s circumstances will be different, remissions will be considered on case by case basis. Taxpayers will be requested to pay the core tax as soon as is practicable with remission of penalties and UOMI being done once the core tax has been paid.
OTHER NOTICES
As we enter the 2021 income tax year with great uncertainty, those who are likely to receive an income tax refund for the 2020 income tax year may consider providing us with their information early so that we can ensure that your refunds are processed promptly.
We would like to wish all our clients and their families well in these uncertain times. We are here to support you.
Michael Roberts
michael@robertsandassociates.co.nz
Martina Evans
martina@robertsandassociates.co.nz
Shane Zhou
shane@robertsandassociates.co.nz
P: 09-9661370
Level 1, 10 Manukau Rd, Epsom, AKL
