Covid 19 coronavirus: SME tax relief, new commercial tenant measures introduced

by NZHerald

April 15 2020

By NZHerald

The Government has today announced a series of measures to provide relief for small and medium-sized businesses slammed by the coronavirus crisis. Measures include
$3.1 billion in tax savings over two years.

Finance Minister Grant Robertson says while the Government had already committed about $20 billion to support the economy but more was needed for businesses.

The new measures include:

•$3.1b tax loss carry-back scheme (estimated cost over the next two years)

•$60 million estimated annual savings to business each year from changes to the tax loss continuity rules

•$25m in the next 12 months for further business consultancy support

•Greater flexibility for affected businesses to meet their tax obligations

•Measures to support commercial tenants and landlords

Robertson said the country needed businesses to stay solvent to help with the economic recovery as New Zealand emerged from the health crisis.

“Our focus on cashflow and confidence continues through these measures. We have approved a tax loss carry-back scheme that will allow a large number of businesses to access their previous tax payments as cash refunds. Essentially this means a forecast loss in the current financial year can be offset against the tax paid on a profit from last year.”

A temporary mechanism will be included in a bill introduced the week of April 27.
Between now and then Inland Revenue will be undertaking targeted consultation with tax advisors to make the law and administrative guidance as clear as possible.

Changing the tax loss continuity rules would make it easier for firms to raise new capital without losing the benefit of their existing tax losses, Robertson said

New Zealand’s rules were among the most stringent in the world, and the in-principle announcement gives taxpayers raising capital a level of certainty to undertake these transactions, while also giving officials time to work through the detailed design of rules that can be included in a bill in the second half of this year. The new rules will apply for the 2020-21 and later income years.

New measures are also being announced to support stability in commercial property transactions, extending the timeframes required before landlords can cancel leases and mortgagees can exercise their rights to sale or repossession.

Justice Minister Andrew Little said many businesses may be finding it difficult or impossible to pay rent if they are no longer able to access their property, and if landlords are not receiving rent, they may not be able to meet their mortgage obligations.

“As a result, the Government will extend the current 10 working day timeframe that commercial landlords may cancel the lease to 30 working days. This will be for both the period the tenant is in arrears before the notice is given, and for the period to remedy the breach.

These changes would still allow landlords to cancel leases and mortgagees to exercise their powers during the period that an epidemic notice is in force, but would allow for more time for breaches or defaults to be remedied.

The Government will also extend the timeframes for lenders from 20 to 40 working days for mortgaged land, and from 10 to 20 working days for mortgaged goods. This will apply to commercial mortgages and home loans.

”However, the already announced mortgage deferrals are likely to be the first port of call for residential borrowers,” said Little.

Minister for Small Business Stuart Nash said some businesses were struggling to meet their non-wage fixed costs, like interest, rent and insurance, but were not currently in a position to take on additional debt.

“In the absence of further support from the Government, these otherwise viable SMEs may be forced to close down permanently.”

The government would provide tailored support services to help businesses weather the storm, at no charge to the business.

This included established services including the Regional Business Partner Network and the helplines run by the Employers and Manufacturers Association and Canterbury Chamber of Commerce.

This could range from human resources advice to business continuity planning to financial management, said Nash.

A document with the ministers’ release said was challenging to cost these measures and quantify benefits to business as the effect of the economic downturn due to Covid-19 was still emerging.

Officials have, however, estimated that the tax loss carry-back scheme could lead to refunds and reduced tax bills of $1.2 billion in 2019-20 and $1.9 billion in 2020-21.

The loosening of tax continuity rules is estimated to result in $60 million of foregone
government revenue (and savings to businesses) per year.

Providing increased business consultancy support is likely to cost $25 million over the next 12 months.

Read full article here.