The Government recently announced tax-related measures to support businesses affected by the coronavirus outbreak. Although they are targeted at businesses affected by the coronavirus outbreak, the measures will apply to all taxpayers.
The tax-related measures include:
- increasing the threshold for which a full tax deduction can be claimed in the year of acquisition for depreciable property from $500 or less to $5,000 or less for the 2020-21 income year only. From the 2021-22 income year onwards the threshold will reduce to $1,000 or less
- reintroducing depreciation deductions at the rate of 2% diminishing value for industrial and commercial buildings, including motels and hotels, from the 2020-21 income year and onwards. This will apply to not only buildings acquired from this date but also commercial and industrial buildings held on this date.
- 2020-21 provisional tax payments will be reduced, accordingly, for those businesses who can now claim depreciation deductions on commercial and industrial buildings
- increasing the threshold as to when you have to pay provisional tax from $2,500 to $5,000 from the 2020-21 income year
- the Commissioner of Inland Revenue having the power for two years to waive interest on late tax payments for those taxpayers significantly adversely affected by the coronavirus outbreak
Although the Government should be commended on taking action, we believe the measures fall short in a few areas:
- the first two measure outlined above were already in the pipeline well before anyone knew the word “coronavirus”
- the increase in the threshold for claiming a full tax deduction on low-value assets only provides a deferral of tax liability rather than permanently reducing the tax liability
- it is likely that businesses financially impacted by the outbreak will reduce expenditure, including capital expenditure, so the increase in the low-value asset write-off threshold will have very little impact
- increasing the threshold as to when a taxpayer has to pay provisional tax only defers the tax liability, rather than reduces the tax liability
- although the Commissioner has powers to waive interest on late payments there has been no statement from the Commissioner that these same powers will also be applied to late payment penalties
If you have any questions about how these measures may apply to your business, please don't hesitate to contact us.
Ngā mihi nui,