Over the past six weeks the government has rolled out a succession of tax measures in response to the Covid-19 situation. To help you keep track we have kept our Covid-19 Tax FAQ [link] up to date with details of the announced relief measures to date. 

Short term loss carry back scheme

The most significant tax measure, the introduction of a short term loss carry back scheme, was enacted in emergency legislation passed on 30 April. 

The carry back scheme is quite complex so the fact that it was taken from a mere proposal to enacted legislation in less than a fortnight is an impressive feat. One could say it is the tax policy equivalent of solving the carbon dioxide build-up problem on Apollo 13! It should give a significant number of affected business some real oxygen, in the form of reduced tax bills and tax refunds, over coming months. 

The scheme’s estimated cost to the government, which translates to an equivalent benefit to business, is $3.1 billion over two years.   In short, if a taxpayer expects to make a tax loss in the 2019/20 or 2020/21 tax year, it will be able to calculate or estimate the loss and carry it back one tax year. A loss carry back will enable the taxpayer to eliminate or reduce tax payable if the previous year was profitable, and therefore potentially obtain a refund of tax paid. The refund could include provisional tax paid for the 2019/20 tax year if a loss is expected in the current 2020/21 tax year. We discuss the details of the scheme, including some potential traps, in our Covid-19 Tax FAQ.    

While this tax loss carry back scheme is a temporary measure, a more permanent loss carry back scheme is also in the wings - with consultation on it to occur later this year.

Other measures

The carry back scheme follows on from a number of other Covid-19 related tax measures, including:

• A new IRD discretion to write-off use of money interest and late payment penalties for taxpayers “significantly affected” by the financial impact of Covid-19. In effect, this gives taxpayers more time to pay tax bills where they are short of cash due to Covid-19.
• Accelerated processing and payment of provisional tax refunds, which will work in tandem with the loss carry back scheme while also providing wider benefits.
• A raised provisional tax threshold, to spare a large number of taxpayers the burden of being dragged into the provisional tax rules for the 2020/21 tax year.
• A wide, temporary IRD discretion to extend due dates and timeframes (eg for filing tax returns and paying provisional and terminal tax) for business taxpayers affected by Covid-19.
• The reintroduction of tax depreciation for industrial and commercial buildings, from the 2020/21 tax year (although this appears to have been in the pipeline anyway, regardless of Covid-19).

Get in touch

Please get in touch with our contacts If you would like to discuss any Covid-19 related or other tax matters.

Contributors sarah.johnson@simpsongrierson.com