The Government yesterday announced it would force through a new Bill that included a tax loss carry-back regime, changes to due dates for tax returns and ensure benefit and pension payments are treated equal to "equivalent payments".
A tax loss carry-back regime means businesses can project losses this year and carry them back a year to claim what taxes they had paid on profits then.
Findex managing partner and tax specialist Scott Mason explained how the carry-back regime would work, using the example of a cafe.
"You take a cafe company and let’s assume they made a $100,000 profit last year and paid $28,000 in tax.
"And this year it’s going to make a $100,000 loss. It could take that $100,000 loss, take it back to last year, offset it against the $100,000 profit and get the $28,000 of tax they’ve paid back."
The tax changes announced showed serious intent by the Government and IRD to keep small and medium-sized enterprises (SME) solvent, Mr Mason said.
But it was a difficult manoeuvre that would require "massaging" to get cash to all businesses.
"This actually is really, really good in terms of freeing up cash quickly.
"There are some practical and technical challenges particularly for SMEs ... which are more to do with the fact that what we’re trying to do is take an existing tax regime — that’s probably the most efficient regime in the world in terms of collecting tax in a simple way — and massage it to do something quite different ... that just creates complexity."
Owners of most SMEs would probably need to consult their accountants and other financial advisers, he said.
"It’s worth a phone call to their accountant, and get them working on it.
"The most important thing to do is focus on your business, look after your staff, yourself and this will take care of itself."
He expected some regulation or policy to tidy up the scheme "around the edges".
"Any time you take something in theory and apply it to the real world you find the real world’s a lot more complex than the theory."
He said the Government had clearly been consulting the finance industry to find the best ways to get money to businesses.
"For some businesses it’s practically going to be reasonably quick. For other businesses there’s probably more work to do to get it there. Hopefully we’re talking weeks, not months."
Revenue Minister Stuart Nash said the Covid-19 Response (Taxation and other Regulatory Urgent Measures) Bill would make available to businesses more than $3billion in tax refunds.
“This response delivers the single biggest government support package to businesses via the tax system in modern New Zealand history, and more is yet to come.”
“My strong advice to businesses is to talk to their accountant, bookkeeper or tax agent, or log on to the MyIR portal as quickly as possible to ensure they take advantage of the government support as soon as changes come into effect this week.
"The tax refunds will be a cash lifeline for businesses with non-wage fixed costs, like rent, interest and insurance. Some don’t want to take on extra debt with a bank loan.
"Without this support these otherwise viable SMEs may be forced to close."
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I can’t believe we are STILL talking about tax incentives and CHATTING with your accounts and banks!!! Small businesses below $250,000 have been completely forgotten about, and for some reason we are blind to what other countries are doing in this area. We need loans with 100% guaranteed risk assurance from the government, very low interest and long repayment periods, and we need it now. Nothing else, no chatting, no tax paperwork and possible rebates. This is not an unreasonable request as a lot of other countries have introduced it. We need 100% risk backing to allow the banks to say yes, at the moment, there is too much paperwork and a above 50% refusal. Come on NZ, get the blinkers off, we have done so well in other areas. We feel the government and media are only listening to the big boys, but us minnows probably are the backbone of this countries economy.