COVID-19: Economic Response Package

Virus

The Government has released an economic response package to help cushion the impact of COVID-19 and support the economy during the COVID-19 crisis.

The package includes:

  • wage subsidy scheme
  • leave and self-isolation support
  • business cash flow and tax measures
  • wider $12.1 billion package

For full details on the package please read THIS ARTICLE.

Our initial thoughts

The tax measures in the overall fiscal package, although limited, are not cheap.

The measures will help those making taxable profits in the current environment. Reinstating building tax depreciation and increasing the low value asset tax write-off will reduce business’s taxable income at an estimated fiscal cost of around $2.8 billion over four years. However, those with current tax losses will have those increased for future use. Assistance for loss making businesses will be through the direct assistance measures in the wider package.

The provisional tax threshold change is long overdue. It will produce a small interest saving for those able to use the new threshold. However, to the extent it means there will be larger end of year tax payments, it may create future cashflow problems. (As a quick reminder, the change to the threshold does not remove the liability to pay tax, it just changes when the tax is due without interest and penalty costs.) As an aside, those who have paid provisional tax in the 2021 income year, but have been adversely impacted by COVID 19, should consider filing early if a tax refund will be due.

The interest write-off for those in financial difficulties as a direct result of COVID 19 will be welcome. However, the key will be how easy will it be for those affected to use the new rules as this relies on the Commissioner exercising her judgement. If it is hard to get Inland Revenue to write off interest, the cost of requesting and justifying the write off may be greater than the benefit. We understand the intention is to make the process as straightforward as possible, potentially using the MyIR online interface for write-off requests. Unfortunately, this will not be known until legislation has been enacted.

If you would like to discuss any of these points with me I’d be happy to talk. Email me  and we can set up a time to chat.