Tony Wilkinson, Partner, together with Fiona Heiford, Senior Associate and Maria Clezy, Senior Solicitor at Buddle Findlay provide an overview into significant tax changes proposed on Wednesday 15 April in light of recent developments surrounding the global pandemic right now.
On 15 April 2020, the Government announced significant tax changes to mitigate the impacts of COVID-19. The proposed changes are targeted at small to medium enterprises (SMEs) which may be unable to take on additional debt and therefore require Government support in order to remain operational.
The latest proposals are in addition to the reform package announced earlier this month regarding R&D tax credits, depreciation deductions and provisional tax. Those earlier changes apply to all qualifying businesses, whereas the proposals announced on 15 April will be targeted at SMEs.
The changes proposed include:
- A tax loss ‘carry-back’ scheme which permits losses incurred in either the 2020 or 2021 tax year to be carried back to the prior tax year. This effectively enables tax losses to be ‘cashed up’ to the extent that tax has been paid in the immediately preceding tax year
- A concession that allows businesses to raise additional capital without forfeiting their ability to use tax losses in later income years.
Material details regarding the operation of the changes are yet to be released. For example, no indication has been provided as to which businesses qualify as SMEs for the purposes of the concessions announced 15 April.
Officials and the Government are to be applauded. The proposed changes represent genuinely innovative thinking around how to provide actual cash relief to a substantial portion of New Zealand businesses via the tax system.
Of course, the changes will not relieve all taxpayers struggling with cash flow, in particular those hoping for the ability to cash up tax losses irrespective of whether tax has been paid in the past (such as start-up businesses). For those businesses, some consolation may be found in the fact that the new ability to carry forward tax losses will provide assistance to them in the longer term.
Implications for businesses now
The announcement does not contain sufficient detail for prudent businesses to take immediate action. As further detail comes to light in terms over the next weeks, the scope of the proposed changes will become clearer and businesses will know whether they benefit from the changes announced.
For those businesses contemplating a capital injection (or winding up), Wednesday’s announcements should give them reason to pause and defer action until the shape of the proposed reforms becomes clearer.
Looking further ahead we anticipate that non-SMEs might ask whether it is appropriate for them to be excluded from the proposed changes announced on 15 April. While the financial implications of allowing all businesses to benefit from the proposed changes will mean that it is likely sometime before the Government widens the reforms to all businesses, there are strong policy pressures in favour of consistent treatment across all taxpayers.
We also anticipate that proposals allowing cashing up of tax losses may reignite a long running debate as to the refundability of imputation credits (which represent tax paid) where received by non-tax paying entities (such as charities). Again, fiscal considerations are likely to mean the current non-refundability approach being maintained.
Tony Wilkinson has a highly regarded practice acting for public and private sector clients. He is the lead tax advisor for Buddle Findlay’s most significant corporate clients and as such is heavily involved in corporate restructurings and acquisitions, tax disputes, inbound and outbound investments and Customs and Excise duty matters. Connect with Tony via email.
Fiona Heiford specialises in tax with particular expertise in commercial transactions. She has in excess of 20 years’ experience in tax, including extensive knowledge of the binding rulings regime and financial arrangements. Connect with Fiona via email or LinkedIn
Maria Clezy is a specialist in the national taxation team. She provides advice to New Zealand and international clients on a wide range of income tax and GST matters, including inbound and outbound investment, corporate restructurings and taxation disputes. Connect with Maria via email or LinkedIn