Coronavirus Tax Changes
The coronavirus pandemic has seen some significant tax changes announced. Media attention seems to have focused on the announcement on wage and salary subsidies but the government has also announced some important changes for the 2021 income year (1 April 2020 – 31 March 2021).
Depreciation on Low Value Assets
For nearly 16 years, the threshold for fixed assets has stood at $500 + GST. Any asset under this amount could be written off in the year it was purchased without depreciating it.
From 1 April, 2020 (the start of the 2021 income year), any asset up to $5,000 + GST in value will be able to be written off immediately. This will have the effect of decrease the profit for that income year and will drive down the amount of income tax payable. This threshold is for one year only.
The threshold will be lowered to $1,000 + GST from 1 April 2021. This is double the current rate so is a good news although some may view it as too low.
There is no doubt that the temporary increase to a threshold of $5,000 is very welcome and should encourage investment in new plant, machinery and computer equipment.
Our view is that the government could well have looked to offer this retrospectively for the 2020 income year which would give more immediate relief to businesses.
Provisional Tax Threshold
The threshold for provisional tax is currently $2,500. This will double to $5,000 from 1 April 2020. This means that if you have a tax bill of less than $5,000, your entity will not enter the provisional tax regime.
Inland Revenue will have discretion to waive interest charges for businesses that are “adversely affected” by the pandemic. This is applicable from 14 February 2020.
GST, income tax and PAYE are all included.
Those who may qualify will need to be able to show Inland Revenue that they have had a significant fall in revenue of at least 30%.
The ability for Inland Revenue to exercise discretion on interest will extend for a period of two years.
Depreciation on Commercial Buildings
Depreciation on buildings was removed last decade.
The government has announced that it will be reintroduced for commercial and industrial buildings. This recommendation was part of the work reported back by the Tax Working Group.
Urgent legislation will be introduced with the aim of a 1 April 2020 start date.
Residential buildings are not affected. The current situation applies and no depreciation will apply.
A diminishing value rate of 2% is proposed. The straight line depreciation rate is yet to be confirmed by Inland Revenue.
Commercial building owners have asked for relief for some time and this announcement is welcome. In particular, the cost of seismic strengthening under new regulations is substantial.
These changes are in addition to those announced last week by Inland Revenue. You can read more about those changes here.
If you want to discuss any matter referred to above in more detail, please get in touch.