Covid-19 – Government Initiatives
As stated above, the Covid-19 crisis has, and will continue to have an impact on many businesses. The Government and Inland Revenue have put in place a number of initiatives to assist businesses and tax payers who are struggling because of the effects of the Covid-19 crisis. Some of the concessions which are still available include:
Covid-19 Small Business Cashflow (Loan) Scheme
The availability of the Small Business Cashflow (Loan) Scheme has been extended. Applications can now be submitted up to and including 31 December 2020. Organisations and small to medium businesses, including the self-employed, may be eligible for a one-off loan with a maximum term of 5 years if they have been adversely affected by Covid-19.
The maximum loan amount is $10,000 plus $1,800 per full time equivalent employee. No repayments are required for the first two years. Interest will not be charged if the loan is fully paid back within one year. Otherwise interest will be charged at 3% per year from the date the loan is drawn down. The loan funds must be used to meet core operating costs, such as rent, utilities and supplier payments.
If you are interested in applying for this loan, further information is available on the Inland Revenue website. You can see if you are eligible, the terms and conditions, and how to apply by following the link below:
Alternatively, give us a call for further information or if you require assistance in applying for the loan.
Provisional Tax Threshold Increased
The threshold for having to pay provisional tax has increased from $2,500 to $5,000 from the 2020-21 year. This will allow tax payers with smaller amounts of tax to delay paying their taxes during this difficult time. In your 2020 return, if your residual tax is less than $5,000, you will not have to pay the 3 instalments of 2021 provisional tax that would previously have been due in August 2020, January and May 2021. Instead, any tax for the 2021 year will be payable in April 2022 (February 2022 if you have no extension of time).
While this does help with cash now, it just defers the inevitable, so you will still need to ensure that you plan for future tax payments. If you would like to continue paying instalments throughout the year, you can make voluntary payments to the IRD, put money aside in a separate bank account until your tax payment is due, or use a tax pooling company like Tax Traders (see separate article).
Note: Although this was introduced as a Covid-19 concession, Inland Revenue have advised the increase in the threshold to $5,000 will remain a permanent change.
Threshold to Write off Small Value Assets Increased
Previously, new assets purchased costing less than $500 (GST exclusive) could be claimed immediately as a deduction in the year of purchase. Any costing more than that had to be capitalised and depreciated over a number of years. Another initiative in response to Covid-19 has been to increase the purchase threshold to $5,000. This is a temporary increase for assets purchased in the 12 month period from 17 March 2020 to 16 March 2021.
However the threshold will be permanently changed to $1,000 for assets bought on or after 17 March 2021. While providing tax relief, this change may also encourage investments in new assets.
Reintroduction of Depreciation on Non-Residential Buildings
Most buildings have not been eligible for tax depreciation since 2011. However, owners of non-residential buildings (e.g. commercial & industrial buildings) will now be able to claim depreciation deductions, from the 2021 year. The applicable depreciation rates will be 2% Diminishing Value (DV) or 1.5% Straight Line (SL). This initiative was introduced as a Covid-19 response, but will also be a permanent change.