Current at 17 March 2020
The Government made a number of tax specific announcements alongside the wage subsidy and leave packages today. While the wage subsidy and leave packages appear well constructed the tax measures are disappointing and provide insufficient immediate tax relief to SME’s.
Depreciation on Buildings will not benefit cash constrained SME’s
Immediate deductions for low value assets increasing from $500 to $5,000 (then reducing to $1,000) requires a business suffering from reduced cashflow through COVID-19 to somehow find cash to spend to gain a tax benefit (spending $1 to save $0.28 when your business is suffering from a recession is illogical)
Moving the provisional tax threshold from $2,500 to $5,000 is of very limited benefit
The use of money interest relief appears to require the approval of the IRD resulting in the business owner being stressed around whether or not they will receive this benefit whilst struggling to figure out the cashflow issues in their business
What we would have liked to have seen is a more proactive approach to enabling immediate access to cashflow through the measures below:
Tax Relief
1. Immediate change to Loss Offset rules
If a business makes a loss in 2020 (or 2021) they should be able to apply for a reassessment of their 2019 income tax return and offset that loss against prior year income. Key benefit is that the business has gained access to any future loss immediately rather than having to wait until they next make a profit to access the losses (which will be too late for some)
2. Extend the Income Equalisation Scheme from the Agricultural Sector to all sectors
The idea mentioned above about immediate loss offset already exists in tax legislation for the Agricultural sector, but in a slightly different form.
Income equalisation is a key lever that enables an agricultural business making a profit one year to pay that profit forward and offset it against future years losses. While the payment remains in the IRD’s hands initially, it can be withdrawn in an adverse event (coronavirus?) providing immediate tax relief through deferring last years income into future years.
This would enable a profitable business in 2020 to access projected losses in 2021 immediately, thereby providing tax relief to all sectors that is currently only available to the Agricultural sector
3. Ensure that the UOMI relief is automatically applied across all SME’s employing less than 50 people thereby enabling the business owner to assess the impact of Coronavirus and respond accordingly without the uncertainty of needing to seek IRD approval