How NZ tax changed during COVID-19
What happened tax-wise as New Zealand headed home to work during the COVID-19 lockdown?
- COVID-19 has highlighted issues around employer-related business costs for employees working from home.
- NZ tax measures introduced during COVID-19 were focused on getting short-term cash flow to businesses.
- CA ANZ would like to see some of the temporary measures introduced during lockdown made permanent.
By Diana Clement
One of the biggest changes to the face of work during COVID-19 was the large-scale migration by employees to the home office – or whatever could serve as one. The self-employed, and those working in business, have always been able to claim a home office. However, the pandemic highlighted issues around employer-related business costs for employees working from home.
“Historically, not many employees have worked from home,” points out CA ANZ New Zealand tax leader John Cuthbertson CA.
So as New Zealand headed home to work, Inland Revenue (IR) stepped in to deal with the issue with Determination EE002 and an “other expenditure” allowance. It’s a temporary measure that allows a tax-exempt allowance of up to NZ$15 per week per employee (NZ$30 a fortnight, NZ$65 a month) to cover extra heating and other costs involved with people working from home.
No invoices or evidence are required to make this claim for the period 17 March to 17 September 2020. It’s not dissimilar to the telecommunications devices exemption of NZ$5 a week.
Another working from home allowance lets employers treat up to NZ$400 of an amount paid to an employee for furniture and equipment costs as exempt income, no evidence needed. Employers who choose to can still claim more, provided they want to keep all the documentation and reimburse employees for actual costs.
The home office allowance is simple and it removes risk, says Cuthbertson, and is one way IR is making compliance easier during the crisis. “Anything tax related you want to be as simple as possible to implement from an employer perspective. That’s the key message,” he says.
NZ’s tax support package during lockdown
Tax reforms implemented and refined during lockdown added up to the biggest single tax support package in modern New Zealand history.
“We knew if we could save jobs we could recover a lot faster and we could ensure those viable but vulnerable companies had a chance of surviving, and moving into recovery and back to viability,” said Stuart Nash, New Zealand’s Small Business and Revenue Minister, in a CA ANZ webinar on 12 June.
“We could ensure those viable but vulnerable companies had a chance of surviving.”
The tax measures introduced were focused on getting cash flow to businesses in the short term, says Cuthbertson, and the system coped surprisingly well.
New Zealand’s tax office has had a bit of practice adjusting to crisis. It’s dealt with the Christchurch, Kaikōura and Wellington earthquakes, when many taxpayers’ records were locked behind emergency cordons preventing them from preparing tax returns.
Inland Revenue’s response to COVID-19 has been more targeted, yet also flexible, says Cuthbertson. “COVID is a different type of event, but the same kind of outcome.”
As soon as the pandemic looked likely to impact the livelihoods of New Zealanders and the ability of businesses to trade, IR and the government responded.
It took the approach of a high trust model with the wage subsidy and tax obligations. Taxpayers simply notified IR if they couldn’t meet expectations, and entered into a repayment plan for the outstanding tax.
“The last thing we want people to do is default on their tax obligations and [for] that to cause an undue level of stress with you racking up thousands of dollars in UOMI [use of money interest] and penalties,” says Nash.
“Where possible, IR still wanted the returns filed as soon as possible to provide government with economic information which would assist in the development of COVID-19 response measures,” says Cuthbertson. “But they weren’t going to penalise taxpayers for filing late.”
This approach meant taxpayers who weren’t badly affected by the lockdown, had good systems in place and could still function, could go ahead and pay their tax.
CA ANZ wants more done on tax
COVID-19 has called for out-of-the-box thinking and CA ANZ stepped up its interaction with IR’s policy officials to help. The NZ Tax Team compiled a list of measures from CA ANZ’s members and policy teams, says Cuthbertson.
CA ANZ would like to see some of the temporary measures introduced during lockdown made permanent. In particular, the IR commissioner having wider discretion to remit UOMI on a class of case or taxpayer industry basis.
Other recommendations included turning off certain features of the system temporarily, or deferring income. For example, debt write-offs give rise to income for the borrower, which isn’t currently conducive to recovery.
Extending the current use of tax pooling across other tax types such as PAYE, GST and FBT, and extending the timeframe to purchase terminal tax beyond the current 75 days to perhaps six months has been suggested.
Raising the threshold for provisional tax, which the government has done, but also modifying provisional tax to remove the 5% and 10% uplift for the next two years was another idea.
Reforms such as these could help ease taxpayers out of survival mode into recovery, says Cuthbertson. “Let’s ensure the tax system at least is not having a negative impact at the moment.”
(Download the full list of CA ANZ recommendations at tinyurl.com/CovidMemorandum.)
“Let’s ensure the tax system at least is not having a negative impact at the moment.”
Acting fast and tweaking later
Nash says the collaboration between IR and CA ANZ was “hugely valuable”. “[Inland Revenue] officials can pick up the phone and speak to tax experts in the knowledge that the feedback will be constructive and it will certainly be non-political,” he says.
“To get tax legislation from concept through to royal assent takes between 18 months to two years. IR stepped this up in about three weeks.”
The legislation wasn’t perfect initially, and some measures had to be rewritten, sometimes more than once. Nash says that the government will have to take good hard look at all the tax settings and how they fit with the integrity of the system.
Scott Mason FCA, managing partner at Findex financial advisory and accounting and deputy chair of CA ANZ’s New Zealand Tax Advisory Group, says the government rightfully focused on the timing element, getting relief out fast.
Picture: Scott Mason FCA.
The wage subsidy was a good, immediate and blunt measure, which was exactly what New Zealand businesses needed at the time, he says.
“Is there a chance New Zealand Inc. was wasting some money? Yes. But what it allowed was businesses to take employees into lockdown on the payroll,” Mason says.
The government had to stress test on the fly and move fast. The government guarantee for loan scheme was an “abject disaster”, says Mason. It was, however, replaced quickly with the Small Business Cashflow (Loan) Scheme, which worked after teething problems settled.
According to Mason, another issue was variability of implementation across the regions. “But the policy intent was right and we will work through it together.”
He says some of the longer-term measures have ended up back of mind for small business owners who have so far focused on survival. However, it made sense for the government to announce these sooner rather than later, so business owners could see a post-COVID future.
The view from the bigger end of town
At the bigger end of town, the government’s wage subsidy made the most difference, according to Greg Haddon FCA, Deloitte Auckland tax partner and chair of the CA ANZ Tax Advisory Group.
The delaying of tax payments, relaxation of UOMI and penalties on late payments has been especially helpful, says Haddon. The loss carry-back rules may also be beneficial, but many corporates are waiting to see whether they will need to claim.
Lockdown wasn’t as dire for many corporates as initially predicted, although some sectors fared better than others. Financial service providers haven’t been too badly affected so far, but are likely to be hit by the general downturn in the economy in the coming months. It’s then that the same or similar business loss continuity test may come into its own.
Picture: Greg Haddon FCA.
NZ tax changes during COVID-19
The tax system provided an efficient mechanism for the New Zealand government to get cash flowing to businesses when COVID-19 hit. The program, administered by Inland Revenue (IR), included both temporary and permanent changes, many of which had been promoted by CA ANZ for years.
- A limited time discretion for the IR commissioner to write off use-of-money interest (UOMI) where the tax payments were missed as a result of the business being severely impacted by COVID-19.
- A similar limited time measure to give the commissioner more discretion to vary requirements under the Inland Revenue acts when it would be impossible, impractical or unreasonable for a customer to comply as a consequence of COVID-19.
- Administration of the Small Business Cashflow (Loan) Scheme for businesses suffering a decline in actual or predicted revenue due to COVID-19. About 80,000 businesses have applied for almost NZ$1.3 billion of interest-free loans.
- Low value asset write-off threshold increased from NZ$500 to NZ$5000 from 17 March 2020, but will return to NZ$1000 on or after 17 March 2021.
- A NZ$3 billion tax loss carry-back scheme for businesses to access their previous tax payments as cash refunds. So far, IR has refunded more than NZ$77 million to more than 1800 taxpayers. IR is looking to introduce a permanent and more refined rule from the 2022 tax year.
- Reintroduction of commercial and industrial building depreciation.
- Introduction of a “same or similar business” test. Minister Nash says the move is especially important for young high-growth companies that have a lot of tax losses on their books.
- An increased provisional tax threshold of NZ$5000, which is expected to remove 95,000 taxpayers from the provisional tax net. The cost of the move is estimated at NZ$650 million, says Nash.
New Zealand tax treatment of COVID-19 measures
The IR website has up-to-date information on depreciation of commercial buildings, Use of Money Interest relief and other tax issues.Find out more
CA ANZ's dedicated hub is regularly updated.Visit the hub