Inland Revenue wants to be flexible amid Covid-19 and is encouraging businesses to “file now, pay later” if they’re under financial stress.
“The key is that we want people to pay the tax when they can, but we understand to keep the business viable, the tax might not be the first thing they need to pay,” says Inland Revenue’s Tony Morris.
“You can file now but pay later.”
Morris, Inland Revenue’s Customer Segment Leader of Significant Enterprises, was speaking in a Chartered Accountants ANZ webinar during the Covid-19 lockdown, in which he and other Inland Revenue experts aimed to answer common tax questions from the public.
“We want to know if there’s a chance your business can still be sustainable. Let us know about your sustainability and then we will look at applying provisions,” he said. .
The webinar came after Inland Revenue set out guidelines to help individuals and businesses during the Covid-19 pandemic.
The key elements outlined include greater flexibility for businesses to meet their tax obligations.
One of the new temporary measures that apply for one year will allow taxpayers to carry back losses from the 2021 tax year to the 2020 tax year or from the 2020 tax year to the 2019 tax year, depending on their profile.
“You need to assess how viable your business is before you start missing a whole pile of tax payments and dig a bigger hole for yourself,” said John Cuthbertson, NZ Tax and Financial Services Leader of Chartered Accountants Australia and New Zealand (CA ANZ).
“If you haven’t yet filed your 2020 tax return or you’re looking at the 2021 year, those losses that you’re looking at will be estimated losses which are permissible,” Cuthbertson said.
“Then you take your loss back to the prior year and can offset that against the taxable income that was there and access your tax paid in that year.
“There’s a cap on that, you can only access your tax paid up to the ICA balance (Imputation Credit Accounts).
“There is an integrity measure to that too, so if you estimate and do a bad estimation and claim too much, you will be penalised with interest,” Cuthbertson said.
“We’re not here to liquidate or bankrupt individuals, we’re here to help and we appreciate that tax is only one of the financial obligations that people have,” said John Rollo, Team Lead in Legal Services at Inland Revenue.
“Most businesses will be affected, so we will accept that if you state that in your forms,” Rollo said.
“We do need to know though as soon as possible if the tax cannot be paid so we can offer options like deferring payments, writing some of the tax off or deferring it for a couple of months.
“But we need the information ASAP to make that decision case by case.
“Each circumstance will be different. If installments will be made in two years or less, our intention is that it will be agreed to by us.
“You don’t have to wait until you have all the information before you contact us.
“You can’t contact us too early,” Rollo said.
Frequently Asked Tax Questions:
To what extent is a taxpayer expected to use a borrowing facility to fund a tax payment due?
- Inland Revenue don’t expect you to exhaust all options possible, but want an honest attempt that you’ve taken steps to be able to pay. Inland Revenue know that tax won’t be the first priority on taxpayer’s agendas.
- Inland Revenue are doing everything it can to make businesses sustainable as a whole.
- Inland Revenue will need a plan to see how the tax will be paid at some stage for the amount that is not written off.
When are interest and penalties remitted under the payment agreement?
- Interest and penalties are remitted at the end of the repayment plan once the outstanding tax due has been paid.
- Inland Revenue statements provided to taxpayers during the deferred payment arrangement will have interest and penalties suppressed.
- You have to give Inland Revenue some idea of how long you believe you will be affected.
- Inland Revenue has a financial relief package – this existed even before Covid-19.
Should current or outstanding tax be prioritised for payment?
- Neither should be prioritised over the other. A taxpayer’s inability to meet the current component due of all tax obligations should be considered in totality.
Should taxpayers prioritise certain tax types for payment?
- It’s ultimately the taxpayers call, it’s their decision which tax types they pay.
- Inland Revenue advise that it will not look to take a PAYE ‘failure account prosecution’ against a taxpayer where honest attempt is made to account for PAYE.
- Inland Revenue will apply a trusted environment model and give the taxpayer-employer the benefit of the doubt.
What about late filing for 2019 income tax returns due to Covid-19?
- Administrative relief will be provided if the return is filed by 31 May 2020.
How long will Covid-19 relief be in place for tax payments?
- It’s temporary relief for 24 months until 25 March 2022. It could possibly be extended but Inland Revenue is looking at a period of two years.
The CA ANZ webinar gave general information only and these statements were not endorsed by CA ANZ. People must seek their own individual advice.