Three newsletters gave some general comments on covid. We now have some analysis of tax issues - but this is a rapidly changing environment. Legislation is still awaited for some, so please treat everything here with caution.

 

The limit for falling into the provisional tax regime was $2,500 tax the previous year. That is now $5,000.

 

IRD has more discretion for two years from 14/2/20 about penalties and interest.

 

Depreciation can now be claimed on commercial (but NOT residential) buildings. This can be used to reduce provisional tax.

 

The limit on low-value assets being expensed rather than capitalised has been raised from $500 to $5000 for the current tax year only. From the 2022 year, the limit falls back to a new limit of $1000 - long overdue.

 

A loss in the current year can be applied to the previous year's profit. This will reduce provisional tax, and possibly enable a tax refund. Be aware this could cause problems with your imputation credit account. It may also remove you from the provisional tax regime - or the ratio method.

 

Pending R&D changes have been brought forward to 2019/20.

 

Loss continuity rules may change - but shares should never be transferred anyway without checking first with your accountant.

 

Wages subsidy. This is a big one and still raises issues. Keep in mind the objective is to keep unemployment down. Basically the government gives you $585.50 ($350 for part-timers) for employees for 12 weeks if your revenue has dropped by at least 30%. You must retain employees for that time, and try to pay at least 80% of their normal pay, no less than the subsidy. If they leave, you must repay the unpaid portion. If their normal pay is below that amount, pay the normal amount. The subsidy must be used only for ordinary wages, which suggests to me any excess may be used for other wages but nothing else. Ordinary employment obligations and deductions apply - so you don't pay the full amount directly to employees. There is retrospective audit potential - which I would expect to see. Any subsidy is not taxable nor is it subject to GST. Nor can wages paid from the subsidy be deducted.

 

To keep a clear audit trail, I suggest the receipt is credited to a new wages subsidy current liability account. As wages are paid, you record them normally and transfer from the subsidy liability account to another new account - an expense account offsetting wages. That not only provides an audit trail but also records the wages in full but removes the amount subject to subsidy from being claimed for tax.

 

Note a second-tier wage subsidy has been announced, but there are changes, including the revenue drop must be at least 50%.

 

As well as direct changes there are some other implications.

 

Loss on sale of investments (e.g. shares, properties, etc) is too big a topic to be covered here. The point is if you are selling assets as a result of covid-19, seek professional tax advice before taking any steps.

 

FBT on vehicles may be limited during lock-down. Usually having a vehicle at home makes it subject to FBT. During lock-down it may be that the car is in fact not used. That alone isn't sufficient to get it out of FBT for that time. A letter from employer to employee will also be required (plus actually not using the vehicle privately).

 

Use of home continues as normal - except you may have staff working from home at this time. Usual rules apply. You can pay a tax-free allowance if their normal pay is reduced to 80% or less. Basing it on the square meter rate reduces paperwork.

 

As a final point covid-19 is likely to lead to restructures in some cases. As with loss on the sale of investments, there are too many issues to be considered here. Suffice to say, seek professional tax advice before taking any steps.