15th April, 2020

New Zealand Government announces additional $3.2bn in business stimulus

The Government’s new $3.2b coronavirus support package contains tax breaks, business advice and commercial rental relief.

The New Zealand Government has just announced a further $3.2 billion in stimulus and support measures for businesses to help the economy through the COVID-19 lockdown.

Previous stimulus measures have already totalled $20 billion, with the Government indicating there is likely more stimulus measures to come.

Key areas of support in the new package:

  • A tax loss carry-back scheme worth $3.1bn over two years
  • Inland Revenue to offer greater flexibility around tax deadlines
  • Free, tailored business consultancy support
  • Extended timeframes before landlords can cancel leases and mortgagees can exercise their right to sale or repossession

Finance Minister Grant Robertson said the new assistance would provide relief for small-to-medium businesses (SMEs) during the COVID-19 pandemic.

MYOB NZ country manager Ingrid Cronin-Knight said many smaller local businesses are staring down the barrel of a loss this year, and the Government’s scheme could make the difference.

“As we saw in our latest research, the majority of small New Zealand businesses expect to have a fall in revenue this year,” said Cronin-Knight.

“So the ability to offset a forecast loss in the current year against the previous year’s tax will give them more options to reduce cost and free up cash.”

Tax loss continuity and carry-back scheme

New Zealand’s current rules are amongst the most stringent in the world, and the Government has recognised that in this latest package, stating that businesses may need to raise additional capital to remain afloat.

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 2020.

The Government has indicated the new rules will apply for the 2020-21 and later income years.

At the same time, a loss carry-back mechanism will allow a business to offset a loss in a particular tax year against a profit in a previous year, and receive a refund of the tax paid in the previous profitable year.

This proposed mechanism will provide cash to businesses that are, or anticipate, being in loss.

The Government has announced that a temporary mechanism will be included in a bill introduced the week of the 27 April. 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.

Greater flexibility around business tax deadlines

Inland Revenue will be given greater flexibility to modify timeframes or procedural requirements for taxpayers who are impacted by COVID-19.

The Government aims to achieve this with an amendment to introduce a discretionary power into the Tax Administration Act 1994, allowing Inland Revenue to provide an extension to due dates and timeframes, or to modify procedural requirements set out in the Revenue Acts.

For example, this could include extending deadlines for filing tax returns and paying provisional and terminal tax.

At this stage, the power will be time-limited for a period of 18 months and will apply to businesses affected by COVID-19, the Government has advised.

Free business consultancy

Businesses will be able to access free, tailored specialist support for a range of issues they may be currently facing, including business continuity planning, finance and cash flow management, HR and staffing issues, and potentially any sector-specific issues, the Government has said.

The Regional Business Partner Network will scale up their existing advisory services so that more businesses can receive support over the next 12 months. On top of that, existing helplines often used by business – like those operated by the Employers and Manufacturers Association or the Canterbury Chamber of Employment and Commerce – will also be extended.

These increased services aim to help businesses understand what support is available to them, so they can have the best chance of weathering the lockdown conditions and any further economic ructions to come.

Support for commercial tenants and landlords

The Government has also announced changes to the standard timeframes set for landlords before they can cancel leases, and for mortgagees exercising their rights to sale or repossession.

As to how much of an extension tenants can expect to receive is yet to be seen, with the Government to provide further clarity on this area soon.

MYOB research shows SMEs will appreciate greater tax flexibility

According to the latest MYOB Business Monitor, a survey of over 1000 SMEs nationwide in March, revenue growth over the 2019/20 year for the SME sector was already finely balanced, with 26 percent of SMEs reporting revenue growth and 26 percent experiencing falling revenue.

But, businesses saw an immediate hit in annual revenue from the coronavirus crisis, with 31 percent of the businesses responding later in the month that their annual revenue was down.

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Looking ahead to 2021, 40 percent of SME operators are forecasting a fall in revenue, while 21 percent believe it will be up. Again, the approximately 400 business owners surveyed after 16 March saw a greater impact from the coronavirus, with 51 percent expecting revenue to be down over the coming year, and just 12 percent expecting growth.

“Introducing greater flexibility on tax payments – and in particular extending the filing and payment periods for provisional and terminal tax – will also reduce the pressure on cash-strapped businesses this year, giving them some breathing room as their revenue falls,” said Cronin-Knight.

Cronin-Knight said the biggest influence on SME confidence according to the MYOB Business Monitor survey is the time and cost of compliance.

“Reducing that headache in this period, and providing certainty about what the trading environment will look like in the future, which hopefully we’ll see in the coming days, will be key to giving local SME operators some assurance about their future,” she said.

“It will also give them the ability to make better decisions about ongoing investment, employment and how long they can sustain revenue losses.”

MYOB encourages all business owners impacted by the COVID-19 lockdown to consult with an accountant or specialist advisor as soon as possible. You can find advisors near you here.