COVID-19 Response (Taxation and Social Assistance Urgent Measures) Bill

  • enacted

COVID-19 Response (Taxation and Social Assistance Urgent Measures) Bill

Government Bill

237—1

Explanatory note

General policy statement

This omnibus Bill introduces amendments to the following legislation:

  • Income Tax Act 2007

  • Tax Administration Act 1994

  • Goods and Services Tax Act 1985

  • Social Security Act 2018

  • Taxation (KiwiSaver, Student Loans, and Remedial Matters) Act 2020

  • Commissioner’s Table of Depreciation Rates

The policy proposals in this Bill are all aimed at assisting the Government’s response to the economic impacts of the COVID-19 outbreak. The Bill includes targeted measures aimed at providing relief to those that have been economically affected by the COVID-19 outbreak. The Bill also includes measures aimed at addressing the broader economic impacts of the outbreak.

Owing to the short timeframe available for developing a policy response to COVID-19 no public consultation has been undertaken on the proposals in the Bill. As such, the tax policy measures within this Bill have not been developed in accordance with the Generic Tax Policy Process.

The following is a brief summary of the policy measures contained in this Bill. A fuller explanation of the policy items is provided in a commentary on the Bill that is available at https://taxpolicy.ird.govt.nz/publications/2020-commentary-covid-19-bill/overview.

Depreciation on non-residential buildings

The Bill proposes to reintroduce depreciation deductions for non-residential buildings. This is intended to support businesses’ cash flow in the near-term and assist with the broader economic recovery by stimulating business investment in new and existing buildings.

Provisional tax threshold

The Bill proposes to increase the threshold for having to pay provisional tax from $2,500 to $5,000. This would allow more taxpayers to delay paying their taxes as they would no longer need to pay in instalments throughout the year.

Low value asset threshold

Taxpayers are currently able to deduct in the year the asset was purchased the full purchase price of assets that cost less than $500. However, for assets over $500 deductions for the purchase price are spread over the life of the asset. The Bill proposes to temporarily increase this $500 threshold to $5,000 for assets purchased in the 12 months from 17 March 2020. This temporary increase is intended to incentivise taxpayers to bring forward investments to encourage spending.

The Bill further proposes to permanently increase the $500 threshold to $1,000 for assets purchased from 17 March 2021. This would reduce compliance costs for businesses and encourage businesses to continue investing.

Research and development tax credits

The Bill proposes an amendment to bring the application date of broader refundability for the R&D tax credit forward by one year, to the 2019–20 income year, to help businesses retain their R&D capability during the COVID-19 outbreak. The R&D tax credit currently only has limited refundability rules, which may not provide sufficient support to loss-making businesses or businesses who do not pay enough income tax to fully utilise their R&D tax credits. Broader refundability rules have been developed and will apply from year 2 of the regime (the 2020–21 income year); however, these rules will not apply in time to benefit R&D performers struggling with the effects of COVID-19. Bringing the application date of the year 2 refundability rules forward to year 1 (2019–20 income year) would provide more businesses with access to R&D tax credit refunds sooner.

Use of money interest remission

The Bill proposes to allow Inland Revenue to remit interest on a late tax payment if the taxpayer’s ability to make the tax payment on time was significantly adversely affected by the COVID-19 outbreak. The ability to remit interest would apply only to tax payments that were due on or after 14 February 2020.

Information sharing

The Bill proposes an amendment to the rules governing Inland Revenue’s ability to share information with other government departments. The Bill would allow Inland Revenue to share information with other government departments to assist those agencies in their response to the COVID-19 outbreak. This would allow information to be supplied to assist the efficient and effective delivery of the Government’s COVID-19 response.

Removal of hours test from the in-work tax credit

The in-work tax credit (IWTC) is an income-tested cash payment of $72.50 per week ($3,770 per year) to working families with children. To be eligible families must be normally working at least 20 hours a week (sole parents) or 30 hours a week (couples). The Bill proposes to remove the work hours eligibility requirement from the IWTC. This would mean that working families who have a reduction in working hours as a result of COVID-19 do not lose their eligibility for the IWTC.

Working for Families tax credit entitlement for emergency benefit recipients

Currently, emergency benefit recipients with dependent children and who are on a temporary visa do not qualify for Working for Families (WFF) tax credits. This is because they do not meet the residence criteria for WFF. The result is a difference in the financial support that these families can access compared with other main benefit recipients with children. The Bill proposes to allow people on a temporary visa, who would not otherwise meet the WFF residence criteria, to qualify for WFF if they receive an emergency benefit from the Ministry of Social Development. This would ensure that families on a temporary visa who receive an emergency benefit because of COVID-19 are able to access a comparable level of financial support to other recipients of main benefits.

GST on COVID-19 related payments

The Goods and Services Tax (Grants and Subsidies) Amendment Order 2020 added the COVID-19 wage subsidy and the COVID-19 leave payment to the schedule of non-taxable grants and subsidies in the Goods and Services Tax (Grants and Subsidies) Order 1992 from 24 March 2020. However, the wage subsidy and leave payments have been paid out from 17 March 2020. The Bill proposes that GST not apply to payments of the COVID-19 wage subsidy and leave payments from 17 March 2020 until the date the 2020 amendment Order came into force. This would ensure consistent GST treatment of these payments regardless of when they were made.

Winter energy payment

The winter energy payment (WEP) is assistance paid to help eligible people meet their household heating costs during the winter months. The rates for the WEP have been doubled by Order in Council to $900 per year for single people with no dependent children and $1,400 per year for couples and people with dependent children. However, this increase in the WEP rates is intended to be temporary and apply for 2020 only. The Bill therefore proposes to restore the WEP rates from 2021 onwards to their current rates of $450 per year for single people with no dependent children and $700 per year for couples and people with dependent children.

Departmental disclosure statement

The Inland Revenue Department and the Ministry of Social Development are required to prepare a disclosure statement to assist with the scrutiny of this Bill. The disclosure statement provides access to information about the policy development of the Bill and identifies any significant or unusual legislative features of the Bill.

Regulatory impact assessment

No regulatory impact assessments have been produced for this Bill due to the very short timeframe for developing a policy response to the COVID-19 outbreak.

Clause by clause analysis

Clause 1 gives the title of the Act.

Clause 2 gives the dates on which the provisions of the Act come into force.

Part 1Amendments to Income Tax Act 2007

Clause 3 provides that Part 1 amends the Income Tax Act 2007.

Clauses 4, 5, 6, 7, 9, 10, 11, 12, 13, 14, 29(2), (4), (6), (7), and (8), and 30 amend, repeal, or insert sections DB 65, EE 31, EE 35, EE 37, EE 61, EE 64, EE 67, EZ 13, EZ 14, YA 1, definitions of grandparented structure, non-residential building, residential building, and special excluded depreciable property, and schedule 39, to provide economic stimulus by allowing depreciation on non-residential buildings.

Clause 8 amends section EE 38 to significantly increase the threshold under which an item of property may be written off rather than depreciated, in response to the COVID-19 outbreak. For items acquired in the first year, the threshold is increased to $5,000, and then, for later acquired items, the threshold is dropped back to $1,000.

Clauses 15 and 16 amend section LA 5 and insert a new section LZ 14 respectively, to accelerate refundability of research and development tax credits.

Clauses 17, 19, 20, and 29(3) amend sections MA 7, MD 9, MD 10, and YA 1, to remove the work hours requirement for In-Work Tax Credits in response to the COVID-19 outbreak and its impact on employment patterns.

Clause 18 amends section MC 5 to provide that an entitlement to an emergency benefit is an alternative to the residence requirement, in determining whether a person qualifies for an entitlement under the family scheme.

Clauses 21 to 28 and 29(5) amend various sections to provide that the residual income tax threshold above which taxpayers must pay provisional tax is raised from $2,500 to $5,000, in order to remove people from the provisional tax system in response to the COVID-19 outbreak.

Part 2Amendments to other enactments

Amendments to Tax Administration Act 1994

Clause 31 sets out the clauses that amend the Tax Administration Act 1994.

Clause 32 replaces the definition of government agency in section 3(1) as a consequence of inserting new clause 23B into schedule 7, part C, subpart 1.

Clause 33 inserts new section 183ABAB, which gives the Commissioner of Inland Revenue a discretion to remit use of money interest for taxpayers whose ability to pay tax on time has been significantly adversely affected by COVID-19.

Clause 34 inserts new clause 23B into schedule 7, part C, subpart 1, to permit the Commissioner of Inland Revenue to disclose information about a person or entity to certain government agencies for certain specified purposes in connection with COVID-19.

Amendment to Goods and Services Tax Act 1985

Clause 35 amends the Goods and Services Tax Act 1985 to ensure that COVID-19-related leave payments and wage subsidy payments made between 17 March 2020 and 23 March 2020 are non-taxable grants for the purposes of section 5(6D) of that Act.

Amendments to Social Security Act 2018

Clause 36 amends the Social Security Act 2018 on 1 May 2021, to halve the rates of winter energy payment (as those rates were increased on 1 April 2020 to apply for the 22-week winter period starting on 1 May 2020 as a response to the COVID-19 outbreak).

Amendments to Taxation (KiwiSaver, Student Loans, and Remedial Matters) Act 2020

Clauses 37 and 38 amend the Taxation (KiwiSaver, Student Loans, and Remedial Matters) Act 2020, to accelerate refundability of research and development tax credits.

Amendment to Commissioner’s Table of Depreciation Rates

Clause 39 amends the Commissioner’s Table of Depreciation Rates, to provide economic stimulus by allowing depreciation on non-residential buildings.