COVID 19 - Your Tax Obligations
COVID-19: Update for business – 3 April 2020:
In this difficult current economic climate, it is important for businesses to understand their upcoming tax and GST obligations and any relief that may be applicable. Terminal Income Tax for the 2019 year is still due on the 7th April 2020.
Outlined below are some common questions and answers along with the IRDs current take on late payments, interest and penalties.
If you are worried about your business’s current situation, and ability to meet GST and Income Tax obligations, please contact our
firm so we can work through these issues with you.
Q: I have 2019 terminal tax to pay on 7 April 2020, what do I do if I can’t pay it?
A: Your tax agent can contact the IRD on your behalf and arrange instalments to be paid to the IRD. This is especially important for businesses that have been affected by COVID-19. The request will need to included details of when payments can be made and the details of how the business has been significantly affected by COVID-19. Tax pooling is another good option that your tax agent can arrange which provides the ability to defer the payment of terminal tax by 75 days. Tax Pooling will charge interest; however, this will be at a lesser rate than IRD.
Q: I have a GST return and payment due soon, do I still need to file this on time – what if I can’t pay it?
A: Yes, GST returns still need to be filed on time with the IRD. It is important to file a return, even if you can’t pay, to ensure your business avoids being issued a default assessment. As above, if you are struggling to make the required GST payment, please contact your tax agent to arrange instalments with the IRD.
Q: If I don’t pay on time, will ‘Use of Money Interest’ and be added?
A: To support businesses and individuals impacted by COVID-19, the Government has recently passed legislation to allow the IRD to write-off use-of-money interest (UOMI) on payments due on or after 14 February 2020. This will be done at the IRD’s discretion and only applies to taxpayers whose ability to make a tax payment on time has been significantly affected by the COVID-19 outbreak. This means affected and eligible taxpayers will only have to worry about paying their core tax debt and won't have to worry about paying interest as well.
You may be eligible for a UOMI write-off if you or your business:
- has been significantly affected by COVID-19
- has had income or revenue reduced by at least 30% compared to the same month 12 months earlier
have explored other options for financial support, such as talking with your bank about additional finance or re-negotiating other
UOMI could be remitted for a maximum of two years, but the actual length will depend on the circumstances of each business or individual.
Q: What is an instalment arrangement?
A: Your tax agent may be able to organise an instalment arrangement with the IRD to clear unpaid tax if you cannot make upcoming payments on time due to COVID-19. Factors the IRD may consider include:
Whether an instalment approach to collecting the tax would maximise the recovery of outstanding tax and allow the business to get back on
- Whether you can pay all the tax immediately or not;
- Other relevant information to the current situation, such as how long you have been in business, the type of business and how COVID-19 has affected your business.
Q: I have a 2020 provisional instalment coming up, but the income for 2020 will be a lot lower due to COVID-19. Can this be estimated to a reduced amount?
A: Yes, your tax agent can estimate your residual income tax for 2020 to a lower level, providing that the estimate is ‘fair and reasonable’. This estimate must be based on what you think the actual residual tax will be at year end, reflecting the reduced income. Keep in mind, estimating provisional tax means UOMI could be payable from the first instalment date.
Q: If I don’t file a return on time, what are the penalties and is there any relief?
A: If you fail to file a return on time, the Inland Revenue can charge a late filing penalty. These penalties range from $50 to $500 for income tax returns (depending on net income). The late filing penalty for a GST return is $250 invoice basis or $50 payments basis. However, the Inland Revenue has promised that it will “be flexible” in the way it approaches filing obligations and tax debt. In this regard any late filing fees are unlikely to be imposed if you cannot file a tax return if you are physically or financially prevented by doing so because of COVID-19 factors.
UPDATE: The IRD has now confirmed that penalties will now be written off.
That being said, the IRD still wants you to file tax returns, even if you can’t make the associated tax payments.
We are well positioned to provide advice and support to all our clients as we self-isolate as a country. This includes guiding your business through this unprecedented situation as they access government supports and entitlements. While our offices are closed, we are still open for business.
Should you need support during this challenging time, please get in contact with one of our partners.
Alan Macdonald – firstname.lastname@example.org or 021 324 527
Jack Perniskie – email@example.com or 03 208 1314
Erin Howes – firstname.lastname@example.org or 027 208 0262
Caleb Macdonald – email@example.com or 021 020 04636
Tim Walsh – firstname.lastname@example.org or 027 436 8663
If you have any general questions, feel free to use our contact us form on the website.