The Government passed the COVID-19 Response (Further Management Measures) Legislation Act (No 2) 2020 under urgency on 6 August 2020. Within this Act, the Government enacted further measures to provide relief for businesses during the COVID-19 pandemic. One of these is pre-terminal and terminal tax interest remission for certain taxpayers.
Under the newly enacted section 183ABAC of the Tax Administration Act 1994, taxpayers who have a RIT of less than $1m for the 2020-21 income year, who either:
may obtain terminal or pre-terminal interest remission if their ability to forecast their RIT was significantly affected by COVID-19, and, as a consequence, the taxpayer failed to pay their provisional and/or terminal tax by the relevant instalment date.
The taxpayer must have paid their terminal tax for the 2020-21 year before the Commissioner may remit any interest. This concession will not apply if the interest arises as a consequence of the taxpayer electing to carry back any prospective losses to the prior year.
If a taxpayer’s ability to forecast their provisional tax payments for the year was not affected by COVID-19, the Commissioner will not consider remitting interest for the taxpayer.
The Act is on Parliament’s website, and there is also a special report on the operation of newly enacted section 183ABAC of the Tax Administration Act 1994 on Inland Revenue’s website.
The application of this section is not without a degree of uncertainty. Many taxpayers are telling us they have seen only a moderate, if any, affect on business performance due to COVID-19 and in light of this prefer the certainty of paying their tax. As an alternative a growing number of our clients are choosing to finance their tax through Tax Traders as this also provides certainty but reduces the cost of paying too much tax. This is because we are providing complimentary feeGuard, which will give them their upfront interest fee back, to the extent they do not need any financed tax amounts. With Inland Revenue no longer providing any credit interest on overpaid tax, the cost of overpaying is now well and truly borne by the taxpayer. FeeGuard eliminates this cost. It provides taxpayers with a greater level of certainty, should they not need to pay any tax amounts, and/or if Inland Revenue do not end up remitting interest for any underpaid tax amounts.
Update: 12 June 2020
For many companies (on a standard 31 March balance date), this will mean that instead of completing their orders by 18 June 2020, they will have up until 7 April 2021 to complete their order. In order to be able to take advantage of this extension, taxpayers must meet the qualifying criteria and have an order placed with Tax Traders in a prescribed timeframe.
This is a welcome move from IR and provides a second chance for taxpayers who have been unable to finalise their tax due to COVID-19.
While full details will be available Monday, here are a few points we can confirm:
Our recommendations at this point are:
Contact us any time if you have any questions before Monday.
Update: 7 May 2020
While IR is signalling that there will be an extension to the 75 day extension period, it will not be a blanket change. For taxpayers to qualify, they will need to meet certain criteria and, in some instances, provide supporting information to tax pools. In addition, it’s unlikely to be a lump sum deferral and taxpayers that receive an extension will need to pay by instalment with Tax Traders across the extension period.
We will update you as soon as we have confirmation from IR regarding the eligibility and information criteria required for an extension.
We recommend that if taxpayers can pay by 18 June, they should. If you believe any of your clients are at risk of not meeting this deadline, please contact us and let us know. We will reach out to you directly as soon as we have confirmation from IR and work with you to get these extensions in place.
Update: 15 April 2020
The new measures provide additional flexibility for taxpayers concerning tax deadlines; make some changes to the tax loss continuity rules; and introduce a tax loss carry-back scheme.
As with other changes announced, these rely on IR discretion and therefore have a high level of uncertainty inherent in them. For example, it will be difficult to say with certainty whether a business will make a loss for the 2021 year before their 7 May payment is due.
Our job is to help taxpayers delay income tax payments with certainty. This is why are we're providing guaranteed refunds on any new tax finance should the taxpayer receive tax relief from IR. If a taxpayer qualifies for one of those initiatives, then they still only pay what they need and we'll refund the portion of the interest they don't need.
Links:
Read the latest from IR
Read the Government's announcement and fact sheets
Update: 8 April 2020
Here's what you need to know:
It is the Commissioner’s view that the taxpayer has been significantly affected by COVID-19 financially where:
"the customer’s income or revenue has reduced as a consequence of COVID-19 and that as a result of that reduction in income or revenue is unable to pay their taxes in full and on time."
This is a more general statement than the previous guidance issued (30% drop in income and been declined financial assistance) and no specifics have yet been provided on what “unable to pay their taxes” will mean in practice.
IR is clear that each request will ultimately be a matter for discretion and notes that every taxpayer will have circumstances unique to them. The guidance released last night is only intended to reflect “the broad tenor of the Commissioner’s position in respect of the current environment”.
In reality, we will only have improved clarity on when the Commissioner will exercise this discretion once we see this legislative change in practice. It still remains to be seen how this discretion translates to real life.
From the guidance given, it appears that IR will provide six month instalment plans that you have to complete in order for the interest to be remitted at the end. Note: For 7 May payments, tax pooling can offer delayed payments of up to 14 months. With Tax Traders this is a fully flexible payment option within that 14-month timeframe; You can vary payments as you go.
Furthermore, in order to set up an arrangement with IR, taxpayers will need to call them and follow a complex application process, requiring specific information. Note: With tax pooling, you can apply online and acceptance is guaranteed.
We understand that there will be more guidance coming from IR in the coming days and weeks. Notably:
These conversations are ongoing and we will keep you informed.
Update: 8 April 2020
We will provide a more detailed update shortly but on first reading, it appears that whilst the guidelines provide more detail there is still a lack of certainty about what this will look like in practice. Some key points to note at this early stage are.
At this point, our guidance remains this: for maximum certainty and flexibility around income tax payments, tax pooling remains best practice.
Update: 3 April 2020
IRD is preparing guidelines to provide clarity on how they will apply this discretion, but these are not available yet. Ahead of formal guidelines, we understand that:
This appears to be a change from the legislative guidelines which required both a 30% drop in income and financial assistance (such as an extension to bank overdraft) to have been declined. There is still no final guidance as to how the criteria above will be applied in real-life scenarios and whether the 30% drop in income will still be relevant.
What is clear is that it is unlikely that the IRD will be publishing tick box detailed guidelines that cover every scenario. This means it will primarily be a matter of discretion as to when IRD will exercise the option to remit UOMI.
If anything, this latest development makes it even more important to provide clients with certainty about their tax position. Tax pooling provides you with complete peace of mind, especially now we have made feeGuard complimentary with all tax finance transactions. This means that if IRD waive your client’s UOMI, we will refund the full amount of your finance fee. No questions asked.
In all of this, our best guidance remains the same: if you have the resources and ability to pay your taxes as they are due you must do this. Tax collection is a critical function of economic recovery and we need to play our part to ensure that New Zealand is in the best shape possible, following our period in lockdown.
Update: 2 April 2020
The COVID-19 tax legislation passed under urgency on 25 March has confirmed the early guidance given to us by IRD. On the same day IRD released the following regarding the late payment of taxes:
“If your business is unable to pay its taxes on time due to the impact of COVID-19, we understand, you don’t need to contact us right now. Get in touch with us when you can, and we’ll write-off any penalties and interest.”
This statement reads as fairly open-ended. However, under the new law, these write-offs will only be applied where the taxpayer is "significantly adversely affected by COVID-19". Early indications are that in practical terms, taxpayers will need to demonstrate the following to IRD:
Not all taxpayers will meet these criteria, and it will take time and effort to provide the required evidence to IRD.
To remove uncertainty, we recommend tax pooling as a safe option - especially with feeGuard now being complimentary with all tax finance transactions. This means that if it transpires that IRD waive your UOMI interest, we will refund the full amount of your finance fee. No questions asked.
Update: 26 March 2020
Read all the detail on our Understanding the Stimulus Package page.
We will continue to keep you updated here and on the COVID-19 section of our website.
Feature Release: 26 March 2020
Today we are releasing three new reports that provide greater clarity and a more intuitive way for you to capture and view key client data. We know that better reporting makes a difference to the way you work and we are committed to improving our system to more closely mirror the kind of information you want and the way you want to receive it.
This report summarises deposits by tax year and shows the amounts available at each date and whether the payment has been made or still waiting to be made. This will enable you to see at a glance how much your clients have paid towards each year’s tax liability. The report will also tell you if the amount has been paid or whether it has been ordered but not yet paid for. You will find the Tax Pooling Summary Report via the client dashboard and the Reports > Tax Pooling Summary menu entry.
This report summarises interest earned and interest paid by tax year. Interest earned is shown gross with a separate column for RWT deducted. This provides the information you need to reflect the impact of tax pooling transactions on your clients’ tax return. You will find the Taxpayer Interest Report via the dashboard and the Reports > Interest Report menu entry.
This report summarises the credit and debit interest for all of your clients in a single place. This allows you to see easily if a particular client has any tax pool transactions relevant to their tax return. You will find the Taxpayer Interest Report accessible via the dashboard and the Global Reports > Interest Report top menu entry.
At Tax Traders, we love it when our clients share their ideas, challenges and wish lists with us and these new reports are a direct result of feedback we’ve received from our client community. It’s just another example of how we are shaping the future of tax pooling, together.
Update: 22 March 2020
You will be aware that our Government announced a new alert system over the weekend as part of the response to COVID-19. As a country, we are on Alert Level 2 with a request that businesses that can work from home, do so. In response to this, the Tax Traders team will begin working remotely from Monday, 23rd March.
At Tax Traders our focus on online tools and automation, along with flexible work practices, means we are well placed to cope with the working environment we now find ourselves in. Please be reassured that Tax Traders services will continue to operate and you should experience no disruption as we move to a full remote working model by Wednesday of this week.
Please continue to contact us via phone, email or here through the website as you always have.
We are in close contact with IRD as the situation evolves and will keep you regularly updated, particularly with returns for FY19 and terminal tax due in the next couple of weeks.
The safety and well-being of our staff and clients, and their families and communities has always been our primary concern and remains so at this time. Please know that thoughts are prayers are with you all.
Warmly,
Josh Taylor and Nicola Taylor
Co-Founders
Update: 18 March 2020
This option now bundled with new tax finance arrangements, at no cost.
Delaying an upcoming tax payment is one of the fastest and easiest ways to ease cash flow pressure now.
To further help New Zealand businesses we have made our feeGuard option complimentary, and are bundling it with all delayed payment arrangements from today.
feeGuard refunds the finance fee on any portion of a delayed payment that the taxpayer doesn't need at maturity. If the amount of tax finally needed is over-estimated, your client gets that portion of the up-front fee back. This insurance option has traditionally required you to opt-in at the cost of an additional 0.5% on the finance rate.
From today, all customers have access to that extra peace of mind by default and at no extra cost.
Update: 18 March 2020
A one-page guide to relieving cash flow pressure with tax pooling.
In the face of rising cash flow pressure for businesses, we’ve summarised the most immediate tax pooling solutions onto one page.
Please feel free to forward this PDF to any of your clients who would benefit from accessing more working capital for their business.
How Tax Pooling Can Help (PDF)
Update: 18 March 2020
The two key changes for tax and tax pooling are:
The discretion will be available where the taxpayer's ability to pay their tax on time has been significantly adversely affected by the virus. We expect the conditions when the Commissioner might use her discretion to be fairly tight but its likely taxpayers will have to prove that:
While the wording does cover provisional tax, the discretion appears to be aimed mostly at monthly payments (i.e. not provisional tax). Tax pooling continues to be the IRD's policy of choice for taxpayers to delay upcoming provisional tax requirements.
It is likely that the IRD will decrease their interest rates for both under- and over-payments of tax. Based on the Official Cash Rate being cut to 0.25% this week, we expect that:
We anticipate these new rates will apply from 7 May and will keep you informed as the details are confirmed.