Overview of the Bill
This COVID-19 response omnibus Bill introduces taxation and other regulatory related amendments that form part of the Government’s response to the impacts of the COVID-19 outbreak.
The measures proposed in the Bill involve changes to income tax, tax administration, primary industries, consumer protection and crown owned entity regulatory requirement measures. This Inland Revenue commentary provides further information on the tax policy proposals in the Bill.
This Bill introduces a tax loss carry-back measure. This would allow businesses that anticipate being in loss in either the 2019–20 or 2020–21 tax year to carry some or all of that loss back to the preceding year where profits were earned.
Loss carry-forwards and carry-backs are intended to prevent systematic over taxation over time. If taxpayers always pay tax when they earn income, but never get relief when they have a loss, they will pay more than the statutory rate of tax over time. Loss carry-backs are one way to address this. The Government has also announced policy changes relating to the loss carry-forward rules, but these are not part of this Bill.
The proposed measure in the Bill is intended as a temporary measure to provide fast cash flow relief for businesses in loss during the period affected by COVID-19. The proposed measure would enable tax refunds for a profit year to be paid before the loss year has finished by enabling taxpayers to estimate the loss for the year and transfer it back to the profit year.
The proposed measure provides for a one-year carry-back. The Government has indicated its intention to develop a permanent loss carry-back mechanism to apply from the 2021–22 tax year. The longer-term regime may be more traditional, such as not allowing a refund before the loss has been established and may have more integrity measures to cover some technical risks. The longer-term regime may provide for a one-year or two-year loss carry-back.
Almost all types of taxpayers – companies, trusts and individuals – would be eligible to carry back losses.
Administrative flexibility for Inland Revenue
The Bill also introduces a proposed new power to give the Commissioner of Inland Revenue the flexibility to quickly provide an extension to due dates, timeframes or modify other procedural requirements for taxpayers who are impacted by COVID-19.
The proposed power could be applied for any due date, timeframe, time period, procedural or administrative requirement across tax or social policy obligations set out in the Revenue Acts and the Unclaimed Money Act 1971.
This power would be limited to an 18-month period which could be extended by Order in Council and to initiatives which are taxpayer friendly.
Tax treatment of payments to New Zealanders stranded overseas
The Ministry of Social Development has established the New Zealanders Stranded Overseas welfare programme for beneficiaries and superannuitants stranded overseas as a result of COVID-19. The Bill proposes a measure ensuring that benefit and pension equivalent payments paid through this programme to people stranded overseas because of COVID-19 continue to have the same tax treatment as their pensions or benefits would be in New Zealand.