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COVID-19: New Zealand Legislates For New Loss Carryback Regime

Posted on 05-04-2020

New Zealand’s parliament has endorsed the COVID-19 Response (Taxation and Other Regulatory Urgent Measures) Bill, a second taxation Bill in response to COVID-19. The Bill received Royal Assent on April 30, 2020.

The Bill contains a temporary tax loss carry-back regime to provide cash-flow quickly to businesses, and it increases the administrative flexibility for Inland Revenue to quickly modify due dates, timeframes, or other procedural requirements for taxpayers impacted by COVID-19.

The Bill also includes provisions to ensure the tax and social policy treatment of benefits and pensions paid to people stranded overseas is consistent with the treatment of equivalent payments to people in New Zealand.

Under the loss carry-back scheme, a firm would be able to offset a loss in a particular tax year against a profit in a previous year, and receive a refund of the tax paid in the previous profitable year. The proposed mechanism will provide cash to firms that expect to post a loss in the 2019/20 tax year or during the 2020/21 tax year, by allowing them to set the loss off against profits made in the past year.

The Government is considering permanently introducing the measure, subject to a consultation to take place in the second half of 2020.

The Government has said taxpayers need not rush to re-estimate their provisional tax before May 7. The proposed law change will make it possible for taxpayers to re-estimate it after the date of the final installment.

New Zealand’s parliament has endorsed the COVID-19 Response (Taxation and Other Regulatory Urgent Measures) Bill, a second taxation Bill in response to COVID-19. The Bill received Royal Assent on April 30, 2020.

The Bill contains a temporary tax loss carry-back regime to provide cash-flow quickly to businesses, and it increases the administrative flexibility for Inland Revenue to quickly modify due dates, timeframes, or other procedural requirements for taxpayers impacted by COVID-19.

The Bill also includes provisions to ensure the tax and social policy treatment of benefits and pensions paid to people stranded overseas is consistent with the treatment of equivalent payments to people in New Zealand.

Under the loss carry-back scheme, a firm would be able to offset a loss in a particular tax year against a profit in a previous year, and receive a refund of the tax paid in the previous profitable year. The proposed mechanism will provide cash to firms that expect to post a loss in the 2019/20 tax year or during the 2020/21 tax year, by allowing them to set the loss off against profits made in the past year.

The Government is considering permanently introducing the measure, subject to a consultation to take place in the second half of 2020.

The Government has said taxpayers need not rush to re-estimate their provisional tax before May 7. The proposed law change will make it possible for taxpayers to re-estimate it after the date of the final installment.