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Last Thursday the government passed legislation to enable taxpayers to carry back losses to the immediately prior year as well as to provide small businesses with cashflow loans. Both measures are designed to provide immediate cash to businesses.
The government had announced the loss carry back regime back in April (see our previous Tax Talk here), however, the legislation provides certainty around how the regime will operate and how taxpayers can utilise this regime.
Primarily, a taxpayer will be able to carry a loss back to the immediately prior year (so a 2021 loss to 2020 or a 2020 loss to 2019). 2019 is the earliest income year a loss can be carried back to, regardless of balance date. This means the prior year taxable income will be reduced and any overpaid tax now potentially refunded. The regime will be elective, with taxpayers needing to choose to carry losses back to a prior year. They will do so by either including the estimated loss in the profit year tax return or by lodging an amendment request with Inland Revenue. The amendment request would take the form of filing an estimate with Inland Revenue; estimates can be made at any time through to the earlier of the date the loss year return is filed or is due.
Key limitations applying to companies are:
The loss carry back regime cannot be utilised in respect of residential rental property losses.
Where a taxpayer has a debt for another tax type (e.g. GST), Inland Revenue is unable to automatically use the refund to offset against that debt (i.e. they must release the refund to the taxpayer).
Under the new "small business cashflow scheme", businesses will be able to get interest-free or low-interest loans of up to $100,000. Key features of the scheme and details on eligibility (based on the government’s press release) include:
Inland Revenue has clarified their commentary on the calculation of depreciation on commercial and industrial buildings. The treatment is summarised below:
Straight Line – Multiply the cost price of the building less fitout, plus capital expenditure by 1.5%
Diminishing Value – Multiply the closing tax book value of the building less fitout, plus post 2011 capital expenditure, by 2%
Fitout referred to above relates to a special concession granted when depreciation on buildings was repealed in 2011.
Straight Line – Multiply the cost price of the building, plus capital expenditure by 1.5%
Diminishing Value – Multiply the closing tax book value of the building, plus capital expenditure by 2%
An earlier version of the commentary had created confusion around the calculation of depreciation under the straight-line method.
Inland Revenue have also announced tax residency will not change for:
If you have any queries in relation to the above, please contact your Baker Tilly Staples Rodway advisor.
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