Tax Alert - April 2022
By John Alcantara
The recent Omicron outbreak has affected businesses and individuals in New Zealand. In response, the Government and the Inland Revenue have enacted several extensions and measures to support those who are struggling to meet deadlines due to COVID-19’s impacts. In this article, we summarise what is available through the tax system.
Extensions passed by the Government
Relief for donated trading stock
In 2021 legislative relief was provided for taxpayers who had been making donations of trading stock. Without that relief, tax avoidance laws treat all donations of trading stock as being made for market value, meaning that a good deed would come with a tax bill. The 2021 relief was due to expire on 16 March 2022, however on 10 March 2022, it was extended until 31 March 2023.
Remission of interest for taxpayers affected by COVID-19
In March 2020 the Commissioner of Inland Revenue was given the ability to remit use of money interest for taxpayers affected by COVID-19 and who asked for relief and made payment as soon as practicable. This concession (section 183ABAB of the Tax Administration Act 1994) was due to expire on 24 March 2022 but has now been extended to 8 April 2024.
Extensions and concessions introduced by the Inland Revenue
The Commissioner of Inland Revenue can extend these deadlines under the power given to her in sections 6H and 6I of the Tax Administration Act 1994. Note that in most cases, these extensions apply if there are difficulties because of circumstances arising either from the imposition of COVID-19 response measures or because of COVID-19. Hence, it is advisable to check the conditions to determine if the extensions apply to your case.
COV 22/01 Application to spread out income from timber
On 2 March 2022, the deadline for making an application to the Commissioner to spread out income from timber to previous income years was extended. This variation extends the deadline from one year from the end of a person’s income year to 31 July 2022. This could apply to taxpayers with an income year ending on or between 28 February 2022 and 30 June 2022.
COV 22/02 Application for a Look-Through Company (LTC) election
On 3 March 2022, the deadline by which the election of becoming an LTC must be received by the Commissioner was extended. For the 2021 income year, where a company makes an election to be a look-through company and section HB 13(3)(b) of the Income Tax Act 2007 applies, the deadline is extended to include an election received by the Commissioner on or before 30 June 2022.
COV 22/03 Writing off Bad Debts
On 3 March 2022, the timeframe by which a debt must be written off as bad for a deduction to be available in that income year was extended to 30 June 2022. This applies to the 2022 income year and taxpayers with 31 March balance dates. In deciding a debt is bad, the taxpayer must consider only information that was relevant as at the end of their 2022 income year.
COV 22/04 Election to form an imputation group
On 4 March 2022, a notice of election to form an imputation group under section FN 7 of the Income Tax Act 2007 has effect from the start of the tax year ending 31 March 2022. This is applicable when the Commissioner receives the notice after 31 March 2022 but before 1 June 2022. This applies from 4 March 2022 to 31 May 2022.
COV 22/05 Determination and payment of beneficiary income
On 7 March 2022, the date to determine and pay amounts of 2021 beneficiary income was extended to 15 July 2022. This variation applies to trustees who have not already determined and paid beneficiary income in respect of a trust’s 2021 income year, and who must do so by 31 March 2022.
COV 22/06 Residency of Natural Persons
On 7 March 2022, the Inland Revenue published a variation on rules concerning the residency of natural persons. The variation’s effect is to allow a person, for the purpose of determining whether they are NZ resident under either section YD 1(3) (the 183-day test) or section YD 1(5) (the 325-day test) of the Income Tax Act 2007, to exclude those days where they were personally present in NZ but practically restricted from leaving between the period 17 March 2020 and 30 June 2022.
Day Test Variations
On 7 March 2022, the Inland Revenue published three variations for day tests concerning visitors, non-resident crew members, and non-resident contractors.
- COV 22/07 - Variation to day test for visitors to New Zealand in section CW 19 of the Income Tax Act 2007: This variation’s effect is to allow a person, for the purpose of determining if income from performing personal or professional services in NZ during a visit is exempt income, to exclude days where they were personally present in NZ but practically restricted from leaving NZ between 17 March 2020 and 30 June 2022.
- COV 22/08 - Variation to day test for non-resident crew members in section CW 21 of the Income Tax Act 2007: This variation’s effect is to allow a person, for the purpose of determining whether they are a “non-resident crew member” of a pleasure craft, to exclude days where they were personally present in NZ but practically restricted from leaving NZ between 17 March 2020 and 30 June 2022.
- COV 22/09 - Variation to day test for non-resident contractors in section RD 8(1)(b)(v) of the Income Tax Act 2007: This variation’s effect is to allow a non-resident contractor to exclude days where they were personally present in NZ but practically restricted from leaving NZ between 17 March 2020 and 30 June 2022 when determining if a payment for services is excluded from being a schedular payment under section RD 8(1)(b)(v).
COV 22/10 Applications to change GST taxable period
From 1 April 2022 to 30 September 2022, a change in the taxable period takes effect at the commencement of the [6-month] taxable period in which the person applies to change the basis on which the person’s taxable period is set. This applies to a registered person who wishes to change from a 6-month to a 1- month taxable period, and for a 6-month taxable period commencing between 1 April 2022 and 30 September 2022.
COV 22/11 R&D Supplementary returns and applications
On 9 March 2022, the deadlines for filing supplementary returns (2020-21 tax year), general approval applications (2021-22 tax year), and criteria and methodologies notices (2021-22 and 2022-23 tax years) were extended. The new deadlines and conditions for extensions are varied.
COV 22/12 “325 Day Absence Rule”
On 9 March 2022, the days that the person was personally absent because they were unable to, or reasonably prevented from, returning to NZ, due to circumstances arising either from the imposition of COVID-19 response measures or because of COVID-19, may be ignored for determining the 325 Day Absence Rule. The person must also return to NZ as soon as reasonable to do, notify the Commissioner in writing and provide any information the Commissioner requests.
COV 22/13 WFF Instalments
On 9 March 2022, the timeframe within which an IRD number must be provided to allow instalment payments of family tax credits to continue was extended for a period not exceeding a further 56 days as determined by the Commissioner. This variation will apply to children born between 12 January 2022 and 30 June 2022.
COV 22/14 GST ratio elections
On 10 March 2022, the deadline by which a person with provisional tax obligations must have informed the Commissioner of their election to use a GST ratio to calculate their provisional tax liability was extended. The extension is to 30 April 2022 for a person with a February balance date and to 31 May 2022 for a person with a March or an April balance date.
COV 22/15 Tax pooling transfers
On 18 March 2022, the time within which a transfer request to use funds in a tax pooling account must be made, was extended to 183 days after the terminal tax date. This variation applies to a person who wishes to use funds in a tax pooling account to satisfy an obligation for provisional tax or terminal tax for the 2021 tax year.
COVID-19 Business Support
COVID-19 Support Payment
Applications are now open for three COVID-19 Support Payment (CSP). The CSP is explained in our March 2022 Tax Alert article. Inland Revenue has now released the relevant dates for each fortnightly payment:
- Applications for the first payment are open for the period beginning 16 February 2022 and ending 4 April 2022.
- Applications for the second payment are open for the period beginning 7 March 2022 and ending 4 April 2022.
- Applications for the third payment are open for the period beginning 21 March 2022 and ending 4 April 2022.
Applications for all 3 CSPs will close on 5 May 2022.
Small Business Cashflow Loan Scheme Extended
The Small Business Cashflow Scheme (SBCS) is available through Inland Revenue to help small and medium-sized businesses by providing no or low-interest loans. Applications are open until 31 December 2023.
From 21 March 2022, the SBCS was amended to increase the base loan to $20,000 (from $10,000). This means that for new loans the amount that can be borrowed will be $20,000, plus $1,800 per full-time equivalent employee (up to 50 employees). The loan repayment period remains 5 years (60 months). The interest terms of the loan were changed to provide that the loan is interest-free for the first two years, with interest at the rate of 3% only applying from the first day of the third year of the loan period.
April 2022 - Tax Alerts
- Research and Development Tax Incentive – Guidance on claiming software development R&D and upcoming due dates