The Government passed the COVID-19 Response (Taxation and Other Regulatory Urgent Measures) Act 2020 on April 30. This Act included two key pieces of support for Small Businesses:

Small Business Cashflow Loan scheme

On April 30 2020, the Government released details regarding a new Small Business Cashflow Loan scheme (the “loan scheme”).

Key features of the loan scheme are as follows:

  • Up to $100,000 to firms employing 50 or fewer full-time equivalent employees. The loan amount is calculated as $10,000 for an applicant plus $1,800 per full time employee.
  • The eligibility criteria are:
    o The wage subsidy scheme criteria plus:
    o A declaration that the business is viable and will use the money for core business operating costs.
  •  The business and Inland Revenue will have a legally binding loan contract.
  • The loan will be for a maximum 5 years, with repayments not due in the first 2 years
  • No interest is charged if the loan is repaid within the first year. A 3% interest rate applies otherwise.
  • Inland Revenue will administer and audit the scheme, with applications open from 12 May. The Act passed yesterday contains specific provisions relating to the administration of the scheme. A decision to grant or decline a loan will not be disputable and information can be shared with the Ministry of Social Development (MSD) (the administrators of the wage subsidy) to administer the scheme.

For further information on the loan scheme, please read our Taxmail.

Loss carry back rules

The Act also contained the temporary loss carry back rules. The main features of the loss carry back rules are:

  • Almost all taxpayers will be eligible to carry back losses including companies, trusts, and individuals.
  • For companies, the refund will be limited to the available imputation credits and shareholder continuity of 49% must be maintained. 
  • If tax losses are overestimated interest will be charged, and the interest cannot be remitted under the new COVID-19 remission rules. 
  • For forecast losses in 2021 you can claim a refund of 2020 provisional tax paid by re-estimating provisional tax.
  • For forecast losses in 2020, you can claim a refund for a loss carry-back by estimating the loss through MyIR and having the 2019 tax return amended.
  • Where a company pays salaries to shareholder-employees there are a number of factors to be considered, including overdrawn current accounts, potential FBT liability, and provisional tax paid by the shareholder-employees
  • The rules do not apply to ring-fenced losses from residential properties.

For further information on the loss carry back rules, please read our April 30 Taxmail.

How we can help

KPMG can support your interaction with Inland Revenue in respect of both opportunities provided under the Act.

  • We can help you perform a forecast, or assess the reasonableness of your own forecasts, to support your funding needs and help determine whether the loan scheme should be considered for your business. This work can also support or determine any tax loss carry-back opportunity.
  • We can provide you with detailed assessments of the implications for your business of the loss carry back rules, including the impact of imputation credits, the loss continuity rules, and the best option if your company pays salaries to shareholder-employees. 
  • We can support your estimated provisional tax / loss with Inland Revenue.

If you would like more information, please contact your KPMG advisor or your local KPMG Private Enterprise office.