Update: 18 August 2020
The Government passed the COVID-19 Response (Further Management Measures) Legislation Act (No 2) 2020 under urgency on 6 August 2020. Within this Act, the Government enacted further measures to provide relief for businesses during the COVID-19 pandemic. One of these is pre-terminal and terminal tax interest remission for certain taxpayers.
Under the newly enacted section 183ABAC of the Tax Administration Act 1994, taxpayers who have a RIT of less than $1m for the 2020-21 income year, who either:
- make a formal estimate of their provisional tax with Inland Revenue before the final instalment date; or
- are safe harbour taxpayers who have not paid or have underpaid at any provisional tax instalment date(s); or
- have a RIT is greater than $60k, where they pay their final instalment based on their expected RIT,
may obtain terminal or pre-terminal interest remission if their ability to forecast their RIT was significantly affected by COVID-19, and, as a consequence, the taxpayer failed to pay their provisional and/or terminal tax by the relevant instalment date.
The taxpayer must have paid their terminal tax for the 2020-21 year before the Commissioner may remit any interest. This concession will not apply if the interest arises as a consequence of the taxpayer electing to carry back any prospective losses to the prior year.
If a taxpayer’s ability to forecast their provisional tax payments for the year was not affected by COVID-19, the Commissioner will not consider remitting interest for the taxpayer.
The application of this section is not without a degree of uncertainty. Many taxpayers are telling us they have seen only a moderate, if any, affect on business performance due to COVID-19 and in light of this prefer the certainty of paying their tax. As an alternative a growing number of our clients are choosing to finance their tax through Tax Traders as this also provides certainty but reduces the cost of paying too much tax. This is because we are providing complimentary feeGuard, which will give them their upfront interest fee back, to the extent they do not need any financed tax amounts. With Inland Revenue no longer providing any credit interest on overpaid tax, the cost of overpaying is now well and truly borne by the taxpayer. FeeGuard eliminates this cost. It provides taxpayers with a greater level of certainty, should they not need to pay any tax amounts, and/or if Inland Revenue do not end up remitting interest for any underpaid tax amounts.
Update: 12 June 2020
For many companies (on a standard 31 March balance date), this will mean that instead of completing their orders by 18 June 2020, they will have up until 7 April 2021 to complete their order. In order to be able to take advantage of this extension, taxpayers must meet the qualifying criteria and have an order placed with Tax Traders in a prescribed timeframe.
This is a welcome move from IR and provides a second chance for taxpayers who have been unable to finalise their tax due to COVID-19.
While full details will be available Monday, here are a few points we can confirm:
- To qualify, taxpayers will need to show a significant decline in actual or expected revenue between January and July 2020 and show that this decline was “related to” COVID-19.
- This decline in revenue must also have resulted in a taxpayer being unable to pay their 2019 terminal tax through a tax pool as anticipated, whether they placed an order with a tax pool or not.
- The extension will apply to the 2019 tax year for all balance dates, (not just those with a 7 April terminal tax date).
- There will be an extra window of time to get a tax pooling arrangement in place (or to put a new arrangement in place) for taxpayers who do not already have one.
Our recommendations at this point are:
- Taxpayers with 2019 shortfalls should still set up an arrangement to pay before 18 June and pay if possible.
- Any taxpayers who have already missed out or will be unable to pay before the 18 June will have a until 21 July 2020 to put a tax pooling arrangement in place. We are expecting further guidance from Inland Revenue on Monday about the process for this.
Contact us any time if you have any questions before Monday.
Update: 7 May 2020
While IR is signalling that there will be an extension to the 75 day extension period, it will not be a blanket change. For taxpayers to qualify, they will need to meet certain criteria and, in some instances, provide supporting information to tax pools. In addition, it’s unlikely to be a lump sum deferral and taxpayers that receive an extension will need to pay by instalment with Tax Traders across the extension period.
We will update you as soon as we have confirmation from IR regarding the eligibility and information criteria required for an extension.
We recommend that if taxpayers can pay by 18 June, they should. If you believe any of your clients are at risk of not meeting this deadline, please contact us and let us know. We will reach out to you directly as soon as we have confirmation from IR and work with you to get these extensions in place.
Update: 15 April 2020
The new measures provide additional flexibility for taxpayers concerning tax deadlines; make some changes to the tax loss continuity rules; and introduce a tax loss carry-back scheme.
As with other changes announced, these rely on IR discretion and therefore have a high level of uncertainty inherent in them. For example, it will be difficult to say with certainty whether a business will make a loss for the 2021 year before their 7 May payment is due.
Our job is to help taxpayers delay income tax payments with certainty. This is why are we're providing guaranteed refunds on any new tax finance should the taxpayer receive tax relief from IR. If a taxpayer qualifies for one of those initiatives, then they still only pay what they need and we'll refund the portion of the interest they don't need.
Update: 8 April 2020
Here's what you need to know:
It is the Commissioner’s view that the taxpayer has been significantly affected by COVID-19 financially where:
"the customer’s income or revenue has reduced as a consequence of COVID-19 and that as a result of that reduction in income or revenue is unable to pay their taxes in full and on time."
This is a more general statement than the previous guidance issued (30% drop in income and been declined financial assistance) and no specifics have yet been provided on what “unable to pay their taxes” will mean in practice.
Discretion is still key
IR is clear that each request will ultimately be a matter for discretion and notes that every taxpayer will have circumstances unique to them. The guidance released last night is only intended to reflect “the broad tenor of the Commissioner’s position in respect of the current environment”.
In reality, we will only have improved clarity on when the Commissioner will exercise this discretion once we see this legislative change in practice. It still remains to be seen how this discretion translates to real life.
Tax pooling is still best practice
From the guidance given, it appears that IR will provide six month instalment plans that you have to complete in order for the interest to be remitted at the end. Note: For 7 May payments, tax pooling can offer delayed payments of up to 14 months. With Tax Traders this is a fully flexible payment option within that 14-month timeframe; You can vary payments as you go.
Furthermore, in order to set up an arrangement with IR, taxpayers will need to call them and follow a complex application process, requiring specific information. Note: With tax pooling, you can apply online and acceptance is guaranteed.
More clarity to come
We understand that there will be more guidance coming from IR in the coming days and weeks. Notably:
- Further clarity around how UOMI remission will apply in more specific situations (for example terminal tax where provisional instalments have been missed);
- Confirmation of a potential extension to the existing tax pooling deadlines that we have been working on with IR.
These conversations are ongoing and we will keep you informed.
Update: 8 April 2020
We will provide a more detailed update shortly but on first reading, it appears that whilst the guidelines provide more detail there is still a lack of certainty about what this will look like in practice. Some key points to note at this early stage are.
- From the guidance given, it appears that IRD will provide six month instalment plans that you have to complete for the interest to be remitted at the end.
Note: For 7 May payments, tax pooling can offer delayed payments of up to 14 months. With Tax Traders this is a fully flexible payment option within that 14-month timeframe; You can vary payments as you go.
- Taxpayers will need to call IRD and follow a more complex application process, requiring specific information.
Note: With tax pooling, you can apply online and acceptance is guaranteed.
At this point, our guidance remains this: for maximum certainty and flexibility around income tax payments, tax pooling remains best practice.
Update: 3 April 2020
IRD is preparing guidelines to provide clarity on how they will apply this discretion, but these are not available yet. Ahead of formal guidelines, we understand that:
- if a taxpayer has had their ability to pay tax on time significantly adversely affected; and
- they can show that this impact is COVID-19 related; then
- remission of UOMI is an option that may be exercised at the Commissioner’s discretion.
This appears to be a change from the legislative guidelines which required both a 30% drop in income and financial assistance (such as an extension to bank overdraft) to have been declined. There is still no final guidance as to how the criteria above will be applied in real-life scenarios and whether the 30% drop in income will still be relevant.
What is clear is that it is unlikely that the IRD will be publishing tick box detailed guidelines that cover every scenario. This means it will primarily be a matter of discretion as to when IRD will exercise the option to remit UOMI.
Where to from here?
If anything, this latest development makes it even more important to provide clients with certainty about their tax position. Tax pooling provides you with complete peace of mind, especially now we have made feeGuard complimentary with all tax finance transactions. This means that if IRD waive your client’s UOMI, we will refund the full amount of your finance fee. No questions asked.
In all of this, our best guidance remains the same: if you have the resources and ability to pay your taxes as they are due you must do this. Tax collection is a critical function of economic recovery and we need to play our part to ensure that New Zealand is in the best shape possible, following our period in lockdown.
Update: 2 April 2020
The COVID-19 tax legislation passed under urgency on 25 March has confirmed the early guidance given to us by IRD. On the same day IRD released the following regarding the late payment of taxes:
“If your business is unable to pay its taxes on time due to the impact of COVID-19, we understand, you don’t need to contact us right now. Get in touch with us when you can, and we’ll write-off any penalties and interest.”
This statement reads as fairly open-ended. However, under the new law, these write-offs will only be applied where the taxpayer is "significantly adversely affected by COVID-19". Early indications are that in practical terms, taxpayers will need to demonstrate the following to IRD:
- a 30% drop in revenue/income as a result of COVID-19; and,
- that they have sought financial assistance (e.g. a bank overdraft extension) and been turned down.
Not all taxpayers will meet these criteria, and it will take time and effort to provide the required evidence to IRD.
To remove uncertainty, we recommend tax pooling as a safe option - especially with feeGuard now being complimentary with all tax finance transactions. This means that if it transpires that IRD waive your UOMI interest, we will refund the full amount of your finance fee. No questions asked.
Update: 26 March 2020
Read all the detail on our Understanding the Stimulus Package page.
- The government has enacted the bill containing the COVID-19 UOMI concession. This bill enables waiver on UOMI and penalties on tax payments under certain criteria.
- We are staying in close contact with IRD to understand the changes that have been introduced and how they will apply.
- We are waiting on further information from IRD regarding what tax payments can be delayed and how significantly taxpayers need to be affected by COVID-19 to take advantage of the UOMI and penalty waiver.
- Our best guidance is that if you have the resources and ability to pay your taxes as they are due you must pay them. We are here to help with that. IR still needs to collect taxes to fund this assistance for those who desperately need it.
We will continue to keep you updated here and on the COVID-19 section of our website.
Feature Release: 26 March 2020
Today we are releasing three new reports that provide greater clarity and a more intuitive way for you to capture and view key client data. We know that better reporting makes a difference to the way you work and we are committed to improving our system to more closely mirror the kind of information you want and the way you want to receive it.
1. Tax Pooling Summary Report
This report summarises deposits by tax year and shows the amounts available at each date and whether the payment has been made or still waiting to be made. This will enable you to see at a glance how much your clients have paid towards each year’s tax liability. The report will also tell you if the amount has been paid or whether it has been ordered but not yet paid for. You will find the Tax Pooling Summary Report via the client dashboard and the Reports > Tax Pooling Summary menu entry.
2. Taxpayer Interest Report
This report summarises interest earned and interest paid by tax year. Interest earned is shown gross with a separate column for RWT deducted. This provides the information you need to reflect the impact of tax pooling transactions on your clients’ tax return. You will find the Taxpayer Interest Report via the dashboard and the Reports > Interest Report menu entry.
3. Global Interest Report
This report summarises the credit and debit interest for all of your clients in a single place. This allows you to see easily if a particular client has any tax pool transactions relevant to their tax return. You will find the Taxpayer Interest Report accessible via the dashboard and the Global Reports > Interest Report top menu entry.
At Tax Traders, we love it when our clients share their ideas, challenges and wish lists with us and these new reports are a direct result of feedback we’ve received from our client community. It’s just another example of how we are shaping the future of tax pooling, together.
Update: 24 March 2020
Speak with our tax specialists anytime that suits you
We are open for business and have extended our contact hours. This means that any time you ring 0800 TAX TRADERS, one of our tax pooling specialists will be available to personally take your call. We are ready to resolve your tax pooling query on the spot, no matter the time of day or night.
Our virtual office has been in place since Monday 23 March and our team is available as per usual via phone and email, 24 hours a day, 7 days a week.
If you need any help from us, please reach out at:
0800 TAX TRADERS (0800 829 872)
Update: 22 March 2020
We are working remotely and here to help
You will be aware that our Government announced a new alert system over the weekend as part of the response to COVID-19. As a country, we are on Alert Level 2 with a request that businesses that can work from home, do so. In response to this, the Tax Traders team will begin working remotely from Monday, 23rd March.
At Tax Traders our focus on online tools and automation, along with flexible work practices, means we are well placed to cope with the working environment we now find ourselves in. Please be reassured that Tax Traders services will continue to operate and you should experience no disruption as we move to a full remote working model by Wednesday of this week.
Please continue to contact us via phone, email or here through the website as you always have.
We are in close contact with IRD as the situation evolves and will keep you regularly updated, particularly with returns for FY19 and terminal tax due in the next couple of weeks.
The safety and well-being of our staff and clients, and their families and communities has always been our primary concern and remains so at this time. Please know that thoughts are prayers are with you all.
Josh Taylor and Nicola Taylor
Update: 18 March 2020
This option now bundled with new tax finance arrangements, at no cost.
Delaying an upcoming tax payment is one of the fastest and easiest ways to ease cash flow pressure now.
To further help New Zealand businesses we have made our feeGuard option complimentary, and are bundling it with all delayed payment arrangements from today.
feeGuard refunds the finance fee on any portion of a delayed payment that the taxpayer doesn't need at maturity. If the amount of tax finally needed is over-estimated, your client gets that portion of the up-front fee back. This insurance option has traditionally required you to opt-in at the cost of an additional 0.5% on the finance rate.
From today, all customers have access to that extra peace of mind by default and at no extra cost.
Update: 18 March 2020
A one-page guide to relieving cash flow pressure with tax pooling.
In the face of rising cash flow pressure for businesses, we’ve summarised the most immediate tax pooling solutions onto one page.
Please feel free to forward this PDF to any of your clients who would benefit from accessing more working capital for their business.
How Tax Pooling Can Help (PDF) >>
Update: 18 March 2020
The two key changes for tax and tax pooling are:
- The provisional tax threshold has changed from $2,500 to $5,000 and is estimated to impact 95,000 small businesses, allowing them to delay payment of their tax obligation.
- Establishment of a new discretion for the Commissioner to waive interest and penalties on late tax payments for taxpayers and provide instalment plans under certain, limited circumstances.
The discretion will be available where the taxpayer's ability to pay their tax on time has been significantly adversely affected by the virus. We expect the conditions when the Commissioner might use her discretion to be fairly tight but its likely taxpayers will have to prove that:
- Their income or revenue has reduced by at least 30% compared to the same month 12 months earlier, or they are unable to process their tax payment to IRD; and
- They have explored other options to support themselves financially, such as talking with their bank about additional finance or re-negotiating other loans/overdrafts.
NB: Tax Pooling is one of the most accessible options for support under this point.
While the wording does cover provisional tax, the discretion appears to be aimed mostly at monthly payments (i.e. not provisional tax). Tax pooling continues to be the IRD's policy of choice for taxpayers to delay upcoming provisional tax requirements.
Expected decrease in UOMI rates
It is likely that the IRD will decrease their interest rates for both under- and over-payments of tax. Based on the Official Cash Rate being cut to 0.25% this week, we expect that:
- The rate IRD pays on overpayments will decrease from 0.81% to 0.00%
- The rate IRD charges on underpayments will decrease from 8.35% to approximately 7.00%
We anticipate these new rates will apply from 7 May and will keep you informed as the details are confirmed.
- News and updates
- Frequently asked questions
- How tax pooling can help
- Understanding the IR's interest waiver
Resources for download
Peace of mind for tax finance
Access the best of IRD and Tax Traders with complimentary feeGuard.
How tax pooling can help
A one-page guide to relieving cash flow pressure with tax pooling.
- IRD - COVID-19 information page
- IRD - COVID-19 extension of time for tax pooling transfers
- CA ANZ - Coronavirus resources
- Legislation - COVID-19 Response (Taxation and Social Assistance Urgent Measures) Act
- Beehive - COVID-19: Economic Response Package
- New Zealand Government - COVID-19 links
- New Zealand Trade & Enterprise - Coronavirus
- Ministry for Primary Industries - Coronavirus and the effects on trade
- Ministry of Health - COVID-19 Novel Coronavirus