Five key ways to get some tax relief

Small businesses need to be aware of tax measures that could help them recover.

With a range of tax deadlines just around the corner, small businesses need to be aware of tax measures available to help them recover from the Covid19 economic crisis.

‘‘As we shift out of the survival phase of the Covid response and into recovery, small businesses won’t want to be caught out by upcoming tax obligations,’’ Chartered Accountants Australia and New Zealand’s New Zealand tax leader, John Cuthbertson, said.

‘‘The Government has introduced a number of tax measures in response to Covid-19, but New Zealand’s tax system is well equipped to support taxpayers and existing options should not be overlooked. The approach taken is targeted at affected taxpayers and is flexible. A range of tax payments can be missed without impact, for example, interest charges.’’

Looming tax deadlines include several GST due dates, depending on your filing frequency; July 7, which is an income tax return filing due date if you don’t have a tax agent; and August 28, when provisional tax is due.

Chartered Accountants Australia and NZ has nominated five tax measures that could make the difference in keeping the doors open and the lights on.

Use of money interest relief and tax payment arrangements

Guidance issued back in March told taxpayers who were significantly adversely affected by Covid-19 not to worry about paying tax due on or after February 14, 2020, and to get in contact with Inland Revenue when they could to sort it out.

There’s a couple of fishhooks here, but overall, it’s a taxpayerfriendly approach. Some of the key points are that, first, Inland Revenue would still like taxpayers to file on time as this business data is valuable to help the Government forecast revenue. Second, taxpayers need to enter an instalment arrangement with Inland Revenue to pay their core tax. Finally, use of money interest and penalties will still be charged, but the commissioner has the discretion to remit this once the core tax has been paid.

This is a useful tool to assist with cashflow by delaying tax payments, but businesses should consider the impact in 12 months’ time if they are repaying tax obligations from the 2019-20 year and 2020-21 tax obligations are also due.

Change of GST filing

While it means more compliance work each month, filing GST on a monthly basis may enable businesses to access tax refunds more regularly. Businesses can change their GST filing frequency in myIR.

If businesses are considering changing their GST filing frequency in order to access refunds faster, they should also be aware that Inland Revenue’s START system will allocate any refunds against outstanding debts. If a taxpayer has not yet paid outstanding provisional tax as a result of Covid-19, and is yet to enter into an instalment arrangement, any GST refunds may be automatically offset against that debt.

Provisional tax threshold change

A permanent increase to provisional tax thresholds is estimated to remove 95,000 taxpayers from the provisional tax net. This means current provisional taxpayers with residual income tax less than $5000 will have until February 7 the year after they filed to pay their tax (further extended to April 7 if their return is prepared by a tax agent). As well as keeping cash in the business for longer, increasing the provisional tax threshold reduces compliance costs for those businesses that are now out of the net.

If businesses find it easier to manage their cashflow by paying their tax in instalments, they can still choose to make voluntary payments throughout the year.

If taxpayers have overpaid their provisional tax for the 2020-21 income year, they can contact Inland Revenue to arrange a refund.

Cashflow boosters

Businesses now have more time to apply for the Small Business Cashflow Loan Scheme (up to and including July 24). Although not a tax measure, the scheme is administered by Inland Revenue and intends to help small businesses with their cashflow including payroll and tax expenses. This is a one-off loan that is interest free if repaid within a year.

As is often the case, things aren’t always as good as they seem. If businesses experience a ‘‘default’’ event, including entering into an arrangement with creditors or administration, they may face interest on the loan as high as

10 per cent. This includes the 3 per cent interest rate of the loan plus Inland Revenue use of money interest, which is now 7 per cent.

Writing off low-value assets and depreciating your industrial or commercial building is another good way to reduce your tax bill. Thanks to the Covid-19 legislation, low-value assets of up to $5000, if bought between March 17, 2020, and March 16, 2021, or $1000 if bought thereafter can be written off immediately. Depreciation on nonresidential buildings can be claimed at 2 per cent (diminishing value method) or 1.5 per cent (straight line) from the 2020-21 income year.

Tax pooling

New Zealand is somewhat of an outlier in the international tax community due to its tax pooling industry. Tax pooling can allow businesses to pay their tax on time via a tax pooling intermediary even if they don’t have the cash at hand. Tax pooling providers also offer more competitive interest rates than Inland Revenue. Businesses can also purchase tax paid to help them satisfy tax that is already overdue. Businesses should talk to their accountant about whether tax pooling is a good option for them.