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New Zealand: Tax developments in response to COVID-19

General Information

This page offers an overview of tax developments being reported globally by KPMG member firms in response to the Novel Coronavirus (COVID-19).

The content will be updated regularly. However, due to the fast-moving pace of change, it may not always reflect the most current developments in a given jurisdiction. Please refer to the date of accuracy and refer to the relevant links, under additional information, for original source information.

Date accurate as of: 20 May 2020

A legislative package has been enacted in New Zealand to mitigate the impact of COVID-19. Key measures include:

Business Income Tax

  • Reintroduction, from the 2020-21 income year, of a 2% DV depreciation deduction for commercial and industrial buildings, including hotels and motels.
  • Temporary increase in the threshold for expensing low-value assets from NZ$500 to NZ$5,000 during the 2020-21 income year. The threshold would be NZ$1,000 from the 2021-22 income year.
  • Changes to the calculation of the in-work tax credit to remove the hours worked test.
  • NZD 2.8 billion in business tax changes to free up cash flow, including a provisional tax threshold lift, the reinstatement of building depreciation and writing off interest on the late payment of tax.
  • Refundability rules for R&D tax credits have been brought forward to the 2019-20 income year.

Filing/Payment Deadline Extension

  • The threshold for paying provisional tax will increase from $2,500 to $5,000 of residual income tax, from the 2020-21 income year.
  • Inland Revenue will be given the power to write off interest on late payments for those adversely impacted by COVID-19 for tax payments due after February 14, 2020.

Inland Revenue announced relief concerning advance pricing agreement (APA) reporting and compliance, and in particular with regard to possible breaches in the terms of an APA during the coronavirus (COVID-19) pandemic. The Inland Revenue guidance permits companies to make crucial business decisions that may have arm’s length implications that in turn may result in breaches of an existing APA without having to notify Inland Revenue. Previously under the terms of an APA, companies were expected to discuss any APA breaches with Inland Revenue and to disclose the implication of these breaches on the validity of the APA prior to filing (lodging) an annual compliance report.

  • Because companies will no longer be required to discuss breaches (or potential breaches) with Inland Revenue during this time, these breaches will need to be addressed in the annual compliance report when it is filed with Inland Revenue. Under this relief, Inland Revenue will review the annual compliance reports in due course and keeping in mind the implications of COVID-19 for the business.
  • Once the disruption caused by COVID-19 has significantly passed, APAs will potentially be reset or reconsidered with Inland Revenue.

Additional Information

Liquidity Measures

The Minister of Finance on 14 April 2020 announced three tax measures that are focused on providing and enabling cash-flow and freeing Inland Revenue’s ability to respond to the consequences of the coronavirus (COVID-19) pandemic. 

Three tax measures include:

  • A tax loss “carry back” rule to allow refunds of tax paid in a prior year—there would be a temporary rule for tax losses in the 2020 and 2021 tax years and a permanent rule for future years.
  • A same or similar “business test” to allow tax losses to be carried forward—this would be intended to help companies to raise capital.
  • A temporary rule to give Inland Revenue flexibility to “relax” time frames and processes without the need for Cabinet approval.

These measures would apply to all businesses (not just small business).

Additional Information

Individual Income Tax

Inland Revenue has released guidance on allowances paid to employees for expenditures (e.g. phones and usage plans such as electricity, phone, broadband) incurred while working from home (WFH) due to COVID-19.

In December 2019, the Commissioner issued a determination which allowed a reimbursing payment of up to $5 per week, per employee, to be treated as exempt income. Above this amount, the exempt amount is 25% if the device/plan is used partly, 75% if used mainly, or 100% if used exclusively for employment purposes. Evidence needs to be kept of employment use and the employee’s costs (actual or estimated on a reasonable basis).

The Commissioner has issued a new temporary COVID-19 related determination for payments between 17 March and 17 September 2020 to reimburse additional WFH costs. This allows:

  • An additional $15 per week, per employee, to be exempt income for “other” WFH expenditure.
  • A tax-exempt payment for use of furniture or equipment when WFH to reimburse the depreciation of the item. The payment will typically be for the cost of the asset and the payment will still be deductible to the employer.

PE and Place of Management

Tax residence of individuals

Inland Revenue has released guidance to address situations where individuals would breach tax residence thresholds due to travel restrictions and prima facie become subject to tax in New Zealand. The key requirement is that a person must leave New Zealand within a reasonable time after they can travel. If that is the case:

  • Individuals here for more than 183 days will remain non-resident for New Zealand tax purposes.
  • Individuals here for more than 92 days in a 12-month period because of travel restrictions, but who otherwise satisfy the requirements for the short stay exemption, will continue to be   exempt.
  • Non-resident contractors exceeding the 92-day threshold but who otherwise are exempt from tax in New Zealand will not become subject to withholding tax.
  • Transitional residents who planned to leave New Zealand prior to their transitional residence period ending will remain transitional residents.

Corporate tax residence and PE

Inland Revenue’s residence guidance also confirms that COVID-19 will not cause foreign companies to become New Zealand tax residents simply because, for example, directors are stranded in New Zealand. The test is how that company is managed in reality. That is, if directors ordinarily do not exercise control from New Zealand, the fact that directors are not presently able to travel to hold board meetings offshore should not adversely impact this conclusion.

Similarly, Inland Revenue confirms that a foreign company will not have a fixed establishment in New Zealand, for example, due to the extended unplanned presence of foreign employees. The relevant consideration is whether any New Zealand presence is permanent (i.e. whether business is regularly carried on partly or wholly from a fixed place). The expectation is that the lockdown should not change the answer. If there was no fixed place of business prior to COVID-19, the effect of restricted travel should not create one.

Transfer Pricing

Inland Revenue announced relief concerning advance pricing agreement (APA) reporting and compliance, and in particular with regard to possible breaches in the terms of an APA during the coronavirus (COVID-19) pandemic. The Inland Revenue guidance permits companies to make crucial business decisions that may have arm’s length implications that in turn may result in breaches of an existing APA without having to notify Inland Revenue. Previously under the terms of an APA, companies were expected to discuss any APA breaches with Inland Revenue and to disclose the implication of these breaches on the validity of the APA prior to filing (lodging) an annual compliance report.

Because companies will no longer be required to discuss breaches (or potential breaches) with Inland Revenue during this time, these breaches will need to be addressed in the annual compliance report when it is filed with Inland Revenue.

Under this relief, Inland Revenue will review the annual compliance reports in due course and keeping in mind the implications of COVID-19 for the business.

Once the disruption caused by COVID-19 has significantly passed, APAs will potentially be reset or reconsidered with Inland Revenue.

Advance Pricing Agreements 

  • Inland Revenue announced relief concerning advance pricing agreement (APA) reporting and compliance, and in particular with regard to possible breaches in the terms of an APA during the coronavirus (COVID-19) pandemic. The Inland Revenue guidance permits companies to make crucial business decisions that may have arm’s length implications that in turn may result in breaches of an existing APA without having to notify Inland Revenue. Previously under the terms of an APA, companies were expected to discuss any APA breaches with Inland Revenue and to disclose the implication of these breaches on the validity of the APA prior to filing (lodging) an annual compliance report.
  • Because companies will no longer be required to discuss breaches (or potential breaches) with Inland Revenue during this time, these breaches will need to be addressed in the annual compliance report when it is filed with Inland Revenue. Under this relief, Inland Revenue will review the annual compliance reports in due course and keeping in mind the implications of COVID-19 for the business.
  • Once the disruption caused by COVID-19 has significantly passed, APAs will potentially be reset or reconsidered with Inland Revenue.

Additional Information

Additional information regarding employment-related measures, economic stimulus measures and other measures.