- $3.1 billion 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
- $25 million in the next 12 months for further business consultancy support
- Greater flexibility for affected businesses affected to meet their tax obligations
- Measures to support commercial tenants and landlords
A new raft of business support was announced by the Government on 15 April 2020, focusing on small to medium-sized enterprises.
John Cuthbertson FCA, New Zealand Tax Leader for Chartered Accountants Australia and New Zealand said the new measures will “give businesses some breathing space to survive and assess their next steps.
“The loss carry back mechanism to access tax paid in prior years – appropriately limited – provides significant cash support to businesses and can be accessed relatively quickly.”
He said the loss carry back is also a more effective use of funding for Government compared to providing further subsidies. Allowing business to cash out tax paid via carry back of 2020 actual or 2021 anticipated losses will remove these losses from the tax base going forward.
“This will assist Government revenue raising as and when businesses return to profitability,” Cuthbertson said.
The introduction of a same or similar business test to supplement existing shareholder continuity requirements for the 2021 income year will also assist businesses to restructure and seek additional funds via capital raising.
“This will enable losses to be retained for future use, something which hasn’t been possible in the past where significant new equity capital has been needed – often stifling growth potential.”
He said it is important that the Government now consider temporarily turning off those tax rules which disrupt business decisions to restructure appropriately for the future, for example the fish hooks in the consolidation and amalgamation regimes and the debt forgiveness income which will otherwise arise under our complex financial arrangement rules.
The taxation of “income received” – a tax notion when debt is written off – will dilute any benefit derived from the release of a debt obligation and will result in an increased tax bill to be funded from scarce cash flow.
“Temporarily amending the thin capitalisation requirements would also provide businesses with some breathing room as asset values have reduced or further debt is required to be taken on.”
Focus on cashflow
Finance Minister Grant Robertson said the Government’s focus on cashflow and confidence continues. “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.
“We are also changing the tax loss continuity rules to make it easier for firms to raise new capital without losing the benefit of their existing tax losses.”
Minister for Small Business Stuart Nash says some businesses are struggling to meet their non-wage fixed costs, like interest, rent and insurance, but are 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.”
Tailored support services to help businesses weather the storm, at no charge to the business, will help prevent that happening.
“Using established services including the Regional Business Partner Network and the helplines run by the Employers and Manufacturers Association and Canterbury Chamber of Commerce, we can get specialist, tailored advice where it is needed, fast,” Nash said.
“This could range from human resources advice to business continuity planning to financial management – because every one of these small businesses will have a different need.”
Commercial property support
New measures to support stability in commercial property transactions were also announced, extending the timeframes required before landlords can cancel leases and mortgagees can exercise their rights to sale or repossession.
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.
Timeframes were also extended 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. Already announced mortgage deferrals are likely to be the first port of call for residential borrowers.
Legislation enacting the changes will be introduced on 27 April and will apply effectively retrospectively once the bill is passed.
The Government says further work is also underway to provide more support for businesses and households as the impacts of COVID 19 become clearer.
Suite of new measures
New measures will provide relief for small and medium-sized businesses during the COVID-19 pandemic.Read more