COVID-19 Tax Act and late payment

COVID-19 Tax Act and late payment

Legislation has now been enacted to bring into effect the Government’s tax and social assistance measures announced on 17 March.


Key contact

Darshana Elwela

Partner - Tax

KPMG in New Zealand


Legislation has now been enacted to bring into effect the Government’s tax and social assistance measures announced on 17 March. The key measures are in our earlier Taxmail on the original announcement. The Act has additional detail on the building depreciation rules and, as a new measure, allowing refunds of R&D tax credits one tax year earlier than previously planned.

Inland Revenue also announced its approach to late payment of tax.

Building depreciation

The legislation here is as expected, with the key additional points being the definition of “residential buildings” that do not qualify. Dwellings, houses and apartments that are owner-occupied, rented or used primarily as a place of residence, and short-term accommodation (such as baches rented out) which has less than four units on the property are residential buildings. This means that motels and hotels will be depreciable buildings but other small scale short-term accommodation will not.

The depreciation rate is set at a 2% declining value or 1.5% straight line.

R&D tax credit refundability rules

Refundability rules for R&D tax credits, which were to have applied from the 2020-21 income year have been brought forward to the 2019-20 income year. Taxpayers will have the ability to choose between the existing limited rules or the broader rules, with the broader rules as the default position (it’s possible that the limited rules will give a better result for some businesses).

This is a good opportunity for businesses to improve their cash flow. More detail to follow in our R&D update later today.

Interest and penalties on late tax payments

The Act gives Inland Revenue the ability to remit use of money interest for taxpayers affected by COVID-19 either physically (e.g. from having to be quarantined) or financially. As well as this, Inland Revenue has also issued a press release that it will write off any penalties and interest for late payments of tax.

This is an unexpected but very welcome change – based on past requests to Inland Revenue, it is unclear how they have reached this conclusion. Perhaps, they, as we all, recognise extraordinary times. However, Inland Revenue has justified their decision, their pragmatic response is welcome

Stay tuned

We expect more measures to be announced to assist taxpayers. We will update either via Taxmail or on our COVID-19 webpage as things change.

If your business includes activity outside New Zealand or you have an interest in what the rest of the world is doing, we have summarised country tax responses to COVID-19 in our COVID-19 Global Tax Developments Summary PDF.

Finally, stay safe and, while complying with the Alert 4 rules, take enjoyment where you can.

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