Tax relief and incentives introduced to help fight COVID, by Stewart Russell
Over the next few weeks, we are going to hear lots of promises on taxes from all the political parties trying to influence our vote. Rather than do any crystal ball gazing and trying to predict the future, I thought it was timely to remind ourselves about some of the COVID tax relief and incentives that have been introduced to try and stimulate economic activity.
I doubt there is one person in the country that doesn’t know about the wage subsidy scheme, and I would expect most business owners to be aware of the small business loan scheme. This is a low interest rate loan (3% per annum) administered by IRD repayable over 5 years, and no repayments due for the first two years. The loan is interest free if fully repaid within 12 months. If you qualify, you can still apply for this loan up until 31 December 2020.
These were probably best well-known reliefs, but there have been other measures introduced which you may have missed.
Previously if you purchased an asset (such as a computer, equipment, tools, machinery) and it cost more than $500 – you didn’t get immediate tax relief. Instead this expenditure had to be capitalised, and you would get tax relief over the useful life of the asset. Obviously, most assets cost more than $500 and therefore tax relief is delayed.
This limit for these low-value assets has increased to $5,000 from 17 March 2020, to encourage business to invest in assets and get immediate tax relief. At present this is just till 16 March 2021, and then the limit will reduce to $1,000.
For the 2020-21 income year onwards, those businesses who own their own premises will be able to get tax relief on writing down the value of their industrial & commercial buildings (including motels and hotels) at the rate of 2% per annum (diminishing value). This reduces the profit for the year, and thus the tax payable.
If a business makes a loss for either the 2020 or 2021 years, it is possible to carry that loss back one year and potentially get a refund on tax which had been previously paid.
The level at which a business or individuals are required to pay provisional tax has increased from $2,500 to $5,000. The IRD expect this to take 95,000 businesses/individuals out of the provisional tax system. This is not a tax saving, as it is only delaying when the tax needs to be paid. It will help cashflow in the short term, but remember the tax still needs to be paid, and will be one bigger bill later in the year, rather than 3 smaller ones.
The IRD has also said that it would not necessarily charge interest on late paid tax on taxes due after 14 February 2020 until March 2022. Interest is till being charged until the core tax has been paid, but is remitted afterwards, provided the business’s inability to pay the tax on time was due to COVID.
If you have any queries related to what tax reliefs or incentives might be useful for your business, feel free to give me a call.