COVID-19 Response (Taxation and Other Regulatory Urgent Measures) Bill

  • enacted

COVID-19 Response (Taxation and Other Regulatory Urgent Measures) Bill

Government Bill

240—1

Explanatory note

General policy statement

This omnibus Bill introduces amendments to the following legislation:

  • Income Tax Act 2007

  • Tax Administration Act 1994

  • Child Support Act 1991

  • Animal Welfare Amendment (No 2) Act 2015

  • Public Finance Act 1989

  • Crown Entities Act 2004

  • State Owned Enterprises Act 1986

  • Credit Contracts Legislation Amendment Act 2019

The proposals in this Bill are all aimed at assisting the Government’s response to impacts of the COVID-19 outbreak. Broadly, the policy proposals in this Bill fall into 2 categories. The first of these categories is targeted measures aimed at providing relief to those that have been economically affected by the COVID-19 outbreak. The second category is measures to address regulatory compliance issues that have arisen as a result of the COVID-19 outbreak. These include the bringing forward or deferral of commencement dates of new legislation, and the extension of timeframes for meeting regulatory deadlines.

Owing to the short timeframe available for developing a policy response to COVID-19, general public consultation has not 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. However, targeted consultation on detailed design of the tax policy proposals has been carried out with a small number of stakeholders.

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

Temporary loss carry-back regime

Part 1 of this Bill amends the Income Tax Act and Tax Administration Act 1994 to introduce a tax loss carry-back measure. This will have the effect of allowing businesses that anticipate being in loss in either the 2019–20 or 2020–21 tax year to carry some or all of that loss to the preceding year where profits were earned.

Loss carry-forwards and carry-backs are intended to prevent systematic over-taxation over time. If taxpayers always pay tax when they earn income, but never get relief when they have a loss, they will pay more than the statutory rate of tax over time. Loss carry-backs are one way to address this.

The measure in the Bill is intended as a temporary measure to provide fast cash flow relief for businesses in loss during the period affected by COVID-19. The measure enables tax refunds with respect to profit years to be paid before the loss year has finished.

Almost all types of taxpayers—companies, trusts, and individuals—will be eligible to carry back losses. The majority of individuals who are taxed through the PAYE system do not have losses and so will be unaffected by this measure but those that operate businesses through partnerships, limited partnerships, and look-through companies will be able to benefit.

Administrative flexibility

Part 1 introduces a temporary discretionary power for the Commissioner of Inland Revenue to respond swiftly to practical concerns in the current environment and where appropriate modify due dates, timeframes, or procedural requirements for taxpayers who are impacted by COVID-19. This is intended to be applied for requirements that are specified under the Inland Revenue Acts, or provisions of the Unclaimed Money Act 1971.

The Inland Revenue Acts include various requirements which must be met within certain timeframes or procedural and administrative requirements. This provision would allow the Commissioner to, at her discretion, extend dates or time periods and vary procedural or administrative requirements which must be met.

This discretionary power is an additional and more timely method in a suite of tools which the Commissioner may use to respond to practical concerns around compliance with tax requirements due to COVID-19. Existing tools include the ability to remit use of money interest and the Commissioner’s discretion under the care and management provision.

Small business cashflow scheme

Part 1 of the Bill inserts a provision into the Tax Administration Act 1994 authorising the Commissioner, on behalf of the Crown, to lend money under the Small Business Cashflow (Loan) Scheme. The scheme is being launched by the Government to assist eligible small to medium businesses that have been adversely affected by COVID-19. The Bill provides for a number of other amendments to support the introduction of the scheme and to ensure that Inland Revenue can use its powers to administer it. Part 1 also amends the Tax Administration Act 1994 to:

  • provide that the Commissioner’s decision to grant or to decline to a loan under the scheme is not a disputable decision for the purposes of the Tax Administration Act 1994; and

  • enable information sharing between Inland Revenue and the Ministry of Social Development for the purposes of the administration of the loan scheme.

The Bill also amends the Income Tax Act 2007 to ensure that the conversion of a portion of the loan to a grant will not have adverse income tax implications for the applicant.

Tax and social policy treatment of pension and benefit equivalent payments

On 17 April 2020, the Minister for Social Development approved and established the COVID-19 New Zealanders Stranded Overseas Support (NZSOS) Programme under section 101 of the Social Security Act 2018. The COVID-19 NZSOS Programme enables payments to be made from 20 April 2020 to New Zealand beneficiaries and pensioners who are stranded overseas as a result of COVID-19, as these individuals would otherwise lose entitlement to their normal payments.

Part 1 of this Bill amends the Income Tax Act 2007 and Tax Administration Act 1994 to ensure that payments made under the COVID-19 NZSOS Programme are subject to the same tax treatment as their standard counterparts. COVID-19 NZSOS payments that are paid in lieu of a main benefit, New Zealand superannuation, and veteran’s pension would be subject to tax and PAYE. COVID-19 NZSOS payments made in lieu of other monetary benefits paid under the Social Security Act 2018 (for example, orphan’s benefit and unsupported child’s benefit) would be exempt from tax, consistent with the tax treatment of their standard counterparts.

These proposed changes also ensure there is no change in student loan obligations and entitlement to working for families tax credits. It would ensure that MSD can continue to pay the family tax credit and Best Start credit where the individual would otherwise be eligible.

Part 1 of the Bill also amends the Child Support Act 1991 to ensure that any COVID-19 NZSOS payments are appropriately considered for child support purposes and the proposed definitional changes largely mirror the changes proposed in the other Inland Revenue Acts.

Deferral of commencement date of new surgical procedures regime

Part 2 amends section 2 of the Animal Welfare Amendment (No 2) Act 2015 to delay the commencement of sections 5(1) and (6), 9, 11(2), 13(1), 14 to 19, 29(1), and 68(2) of that Act. Those provisions amend the Animal Welfare Act 1999 to remove existing rules about who may carry out different types of surgical procedures on animals and replace them with new criteria for determining whether a procedure on an animal is a significant surgical procedure, and to restrict the performance of such procedures to veterinarians, veterinary students under supervision, or persons specified in regulations. Those provisions are due to come into force on 9 May 2020. The policy objective of this amendment is to delay the changes to the Animal Welfare Act 1999 and therefore the need for regulations in the immediate future. If regulations are not in place by 9 May 2020 to align with the changes to the Act, some routine procedures will only be able to be performed legally by veterinarians or veterinary students under supervision.

The Ministry for Primary Industries (MPI) does not consider it is feasible to introduce new regulations while an epidemic notice is in place. This is because communication with stakeholders through the normal channels to support implementation is not possible. Normal channels of communication would include targeted face-to-face meetings, development and production of physical material, and distribution of information through online media that is now focused on responding to COVID-19.

Further, MPI considers that delaying the introduction of the regulations in the short term will not significantly impact animal welfare outcomes. The regulations are generally intended to clarify who can perform specific procedures and under what circumstances, rather than being a significant change from current requirements or current practice.

Bringing forward commencement of the Credit Contracts Legislation Amendment Act 2019

Part 2 amends the Credit Contracts Legislation Amendment Act 2019 (CCLAA) to address concerns arising from the economic effects of COVID-19:

  • to better protect consumers during the disruption and financial uncertainty caused by COVID-19, the Bill will amend the CCLAA to bring forward the commencement date of certain protections relating to high-cost consumer credit contracts from 1 June 2020 to the day after this Bill receives the Royal assent. This change will bring forward the limit on the accumulation of interest and fees (capped at 100% of the loan principal), as well as a prohibition on compound interest, and a cap on default fees:

  • the Bill will also amend the CCLAA to enable a delay to the commencement dates of the broader reforms in the Amendment Act of at least 6 months. These reforms were to come into force on 1 April 2021. The CCLAA introduces a range of new measures to protect consumers and will require lenders to implement significant system changes, requiring a lead time of at least 9 months. Lenders are likely to have reduced capacity to prepare for these changes during the COVID-19 response and recovery for an as yet unknown length of time. Delay is required to give sufficient time to prepare for the implementation of the broader system changes. The Bill shifts the backstop commencement date to April 2023, and provides for the reforms to be brought into force prior by Order in Council:

  • for efficiency, the Bill also provides for the coming into force of a range of technical and other provisions of the CCLAA on the day after the Royal assent, and on 1 June 2020, which would otherwise have been brought into force by Order in Council. These are necessary for the effective and efficient operation of the Credit Contracts and Consumer Finance Act 2003 and enforcement of the protections around high-cost credit contracts.

Extension of timeframe for certain entities to provide draft planning documents to responsible or shareholding Ministers

The State-Owned Enterprises Act 1986, Public Finance Act 1989, and Crown Entities Act 2004 contain requirements for various entities to provide draft planning documents to their responsible or shareholding Ministers, and to then finalise these documents. It is anticipated that, because of the effects of COVID-19, some of these entities will be unable to, or will face significant difficulties if required to, provide and finalise the documents within the timeframes provided for in those Acts. The amendments in Part 2 of this Bill provide for powers for responsible or shareholding Ministers.

Departmental disclosure statement

The Inland Revenue Department, the Treasury, the Ministry of Business, Innovation and Employment, and the Ministry for Primary Industries 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 as all the proposals are emergency regulatory proposals relating directly to COVID-19 for which regulatory impact assessment requirements have been suspended.

Clause by clause analysis

Clause 1 gives the title.

Clause 2 provides for the commencement of the clauses.

Part 1Amendments to Inland Revenue Acts

Income Tax Act 2007 amended

Clause 3 sets out the clauses that amend the Income Tax Act 2007.

Clause 4 amends section CW 33 to create an exception from the income tax exemption for a monetary benefit (not being a main benefit) under the Social Security Act 2018 for a payment of special assistance under the COVID-19 New Zealanders Stranded Overseas Support Programme that corresponds to a payment of New Zealand superannuation or a veteran’s pension.

Clause 5 amends section DF 1 to provide an exception to the general denial of a deduction for government grants to businesses for loans made under the small business cashflow scheme established by the Crown to provide loans to assist small-to-medium businesses in the circumstances arising from the continuing impact of COVID-19 related measures or circumstances.

Clause 6 amends section EW 45 to provide that a person who is granted a loan under the small business cashflow scheme and is released from an obligation to pay an amount owing under the loan is treated as having paid the amount owing.

Clause 7 inserts new section GB 3B, which provides that an arrangement is not effective if it is intended to allow a company to meet the requirements of new section IZ 8 in a way that has the purpose of defeating the intent and application of that section.

Clause 8 amends section GB 4 by inserting cross-references to new section IZ 8.

Clause 9 amends section IC 9 to extend the time for the filing of a return by a company that uses in a tax year a tax loss arising from a net loss in a later tax year and made available by another company, in the same group of companies, that makes an election under new section IZ 8.

Clause 10 amends section ID 1 by inserting a cross-reference to new section IZ 8.

Clause 11 inserts new section IZ 8, under which a person who has taxable income in the 2018–19 or 2019–20 tax year and anticipates a net loss in the next tax year may make an election to reduce the amount of the net loss and also reduce the amount of the person’s taxable income in the earlier year by the same amount. The effect of the election is known as “carrying back” the amount of net loss, while the usual approach of using a tax loss in a later tax year is known as “carrying forward” the tax loss.

Clause 12 amends section MD 6 to ensure that a child for whom a payment of special assistance is made under the COVID-19 New Zealanders Stranded Overseas Support Programme that corresponds to an orphan’s benefit or an unsupported child’s benefit is treated as financially dependent on a person who is their principal caregiver for the purpose of determining the person’s entitlement to an in-work tax credit for the child.

Clause 13 amends section RC 7 so that a person, or a shareholder-employee of a person, who makes an election under new section IZ 8 may use the estimation method for determining the amount of provisional tax required for the earlier of the tax years affected by the election. The estimate or revision of an estimate may be made within an extended period.

Clause 14 amends section RM 10 by inserting a cross-reference to new section IZ 8.

Clause 15 amends section YA 1. Subclause (2) amends the definition of available tax loss by inserting a cross-reference to new section IZ 8. Subclause (3) inserts a new definition of COVID-19 New Zealanders Stranded Overseas Support Programme, which is used in several new definitions of various forms of assistance granted under that programme. Subclause (4) amends the definition of dependent child to ensure that a child for whom special assistance is being paid under the COVID-19 New Zealanders Stranded Overseas Support Programme that corresponds to an orphan’s benefit or an unsupported child’s benefit is not included as a dependent child for the purposes of certain Working for Families tax credits. Subclause (5) amends the definition of financially independent to ensure that a person receiving special assistance under the COVID-19 New Zealanders Stranded Overseas Support Programme that corresponds to New Zealand superannuation or a veteran’s pension is considered financially independent, just as they would be if they were receiving their usual payments. Subclause (6) amends the definition of income-tested benefit to add main benefit equivalent assistance to the list of benefits that are within the meaning of that term. Subclause (7) inserts a new definition of main benefit equivalent assistance, which covers special assistance granted under the COVID-19 New Zealanders Stranded Overseas Support Programme that corresponds to a main benefit. Subclause (8) amends the definition of New Zealand superannuation to include New Zealand superannuation equivalent assistance within the meaning of that term. Subclause (9) inserts a new definition of New Zealand superannuation equivalent assistance, which is used in the amendments to section CW 33 and the definition of financially independent, and covers special assistance under the COVID-19 New Zealanders Stranded Overseas Support Programme that corresponds to New Zealand superannuation. Subclause (10) inserts a new definition of orphan’s benefit to ensure orphan’s benefit equivalent assistance is covered by that term. Subclause (11) inserts a new definition of orphan’s benefit equivalent assistance, which covers special assistance granted under the COVID-19 New Zealanders Stranded Overseas Support Programme that corresponds to an orphan’s benefit. Subclause (12) inserts a new definition of small business cashflow loan to support the changes to the Tax Administration Act 1994. Subclause (13) inserts a new definition of unsupported child’s benefit to ensure unsupported child’s benefit equivalent assistance is covered by that term. Subclause (14) inserts a new definition of unsupported child’s benefit equivalent assistance, which covers special assistance granted under the COVID-19 New Zealanders Stranded Overseas Support Programme that corresponds to an unsupported child’s benefit. Subclause (15) replaces the definition of veteran’s pension to include veteran’s pension equivalent assistance within the meaning of that term. Subclause (16) inserts a new definition of veteran’s pension equivalent assistance, which is used in the amendments to section CW 33 and the definition of financially independent, and covers special assistance under the COVID-19 New Zealanders Stranded Overseas Support Programme that corresponds to a veteran’s pension.

Tax Administration Act 1994 amended

Clause 16 sets out the clauses that amend the Tax Administration Act 1994.

Clause 17 amends section 3 by amending the definition of disputable decision to provide that a decision to make, or a decision to decline to make, a variation under new section 6I is not a disputable decision. In addition a decision to grant or to decline to grant a loan under the small business cashflow scheme under new section 7AA is not a disputable decision.

Clause 18 inserts a new heading and new sections 6H and 6I to provide the Commissioner with a discretion to vary a due date or other time limit, or a procedural or administrative requirement in a provision of an Inland Revenue Act, when compliance with the provision becomes impossible, impractical, or unreasonable in the circumstances arising from COVID-19 response measures or as a consequence of COVID-19. A person may choose whether or not to apply the variation.

Clause 19 inserts new section 7AA to authorise the Commissioner to make loans under the small business cashflow scheme to eligible persons who enter into loan contracts with the Commissioner.

Clause 20 amends section 80KK to remove a redundant reference to the Social Security Act 1964 and a reference to the Social Security Act 2018 that will become redundant as a consequence of inserting definitions of orphan’s benefit and unsupported child’s benefit into the Income Tax Act 2007.

Clause 21 inserts new section 113G to extend the time limit for a reassessment of the earlier of 2 tax years affected by an election under new section IZ 8 of the Income Tax Act 2007. The earlier tax year may be reassessed within the same time limit as the later tax year.

Clause 22 amends section 183ABAB so that the Commissioner’s discretion to remit a payment of use of money interest under that section does not include a power to remit interest arising from a failure to elect under new section IZ 8 of the Income Tax Act 2007 an amount that is allowed by that section.

Clause 23 amends schedule 7 (Disclosure Rules) by inserting a new clause 45B for information exchanges with the Ministry of Social Development for the purposes of administering the small business cashflow scheme.

Child Support Act 1991 amended

Clause 24 sets out the clauses that amend the Child Support Act 1991.

Clause 25 amends section 2. Subclause (1) inserts a new definition of COVID-19 New Zealanders Stranded Overseas Support Programme, which is used in several proposed amendments to the Act. Subclause (2) amends the definition of social security benefit to include within the meaning of that term special assistance under the COVID-19 New Zealanders Stranded Overseas Support Programme that corresponds to a benefit of a kind already covered by that term.

Clause 26 amends section 9 to include special assistance under the COVID-19 New Zealanders Stranded Overseas Support Programme that corresponds to an unsupported child’s benefit within the meaning of unsupported child’s benefit for the purposes of that section.

Clause 27 amends section 27 to ensure that an election to end a formula assessment in respect of a child does not qualify for acceptance if a recognised carer of the child is receiving special assistance under the COVID-19 New Zealanders Stranded Overseas Support Programme that corresponds to a benefit of a kind that is covered by the existing definition of social security benefit.

Clause 28 amends section 35A to ensure that a person receiving special assistance under the COVID-19 New Zealanders Stranded Overseas Support Programme that corresponds to a supported living payment continues to receive the higher of the 2 rates of living allowance. A parent’s living allowance is subtracted from their adjusted taxable income when calculating their child support income amount.

Clause 29 amends section 142 to include special assistance under the COVID-19 New Zealanders Stranded Overseas Support Programme that corresponds to an unsupported child’s benefit within the meaning of unsupported child’s benefit for the purposes of that section and section 143.

Part 2Amendments to other Acts

Animal Welfare Amendment Act (No 2) 2015 amended

Clause 30 provides that clause 27 amends the Animal Welfare Amendment Act (No 2) 2015.

Clause 31 amends the commencement date for certain provisions of the Animal Welfare Amendment Act (No 2) 2015.

Under section 2(1) of that Act, sections 5(1), (5), and (6), 9, 11(2), 13(1), 14 to 19, 23 to 25, 26, 29(1), 56, and 68(2) of that Act come into force on the earlier of a date appointed by the Governor-General by Order in Council and 5 years after the date on which the Act received the Royal assent (which is 9 May 2020). Sections 23 to 26 were brought into force on 25 August 2016 by the Animal Welfare Amendment Act (No 2) 2015 Commencement Order 2016. Sections 5(5) and 56 are to come into force on 9 May 2020.

The remaining provisions amend the Animal Welfare Act 1999 by removing existing rules about who may carry out different types of surgical procedures on animals and replacing them with new criteria for determining whether a procedure on an animal is a significant surgical procedure, and restricting the performance of such procedures to veterinarians, veterinary students under supervision, or persons specified in regulations. Those provisions are due to come into force on 9 May 2020.

Clause 31(1) retains the commencement date for sections 5(5), 23 to 26, and 56 as being on the earlier of a date appointed by the Governor-General by Order in Council and 5 years after the date on which the Act received the Royal assent.

Clause 31(2) extends the commencement date for sections 5(1) and (6), 9, 11(2), 13(1), 14 to 19, 29(1), and 68(2) by up to 12 months, to 9 May 2021.

Clause 31(3) makes it clear that one or more Orders in Council may be made appointing different dates for different provisions to come into force.

Credit Contracts Legislation Amendment Act 2019 amended

Clause 32 sets out the clauses that amend the Credit Contracts Legislation Amendment Act 2019.

Clause 33 has 2 effects as follows:

  • first, it brings forward, from 1 June 2020 to the day after this Bill receives the Royal assent, the commencement date of certain protections relating to high-cost consumer credit contracts (notably the rule that the costs of borrowing must not exceed the loan advance and rules around compound interest and default fees):

  • secondly, it defers, from 1 April 2021 to 1 April 2023, the backstop commencement date for all of the other provisions of the CCLAA that have not yet been brought into force.

Clause 34 makes consequential changes to the transitional provisions in Schedule 2.

Consequential amendments to Schedule 1AA of Credit Contracts and Consumer Finance Act 2003

Clause 35 makes consequential amendments to Schedule 1AA of the Credit Contracts and Consumer Finance Act 2003.

Public Finance Act 1989, Crown Entities Act 2004, and State-Owned Enterprises Act 1986 amended

Clause 36 provides that clause 37 amends the Public Finance Act 1989.

Clause 38 sets out the clauses that amend the Crown Entities Act 2004.

Clause 41 provides that clause 42 amends the State-Owned Enterprises Act 1986.

In accordance with those Acts, various entities are required to prepare and provide certain documents over the next few months. Affected entities include departments, Offices of Parliament, companies listed in Schedule 4A of the Public Finance Act 1989, some organisations listed in Schedule 4 of the Public Finance Act 1989, Crown entities, and State-owned enterprises.

It is anticipated that, because of the effects of COVID-19, some of those entities will be unable to, or will face significant difficulties if required to, prepare and provide the documents as provided for in those Acts.

The amendments in clauses 37, 39, 40, and 42 allow for Ministers to extend the time for meeting those requirements by up to 3 months if the relevant Minister (or Ministers) are satisfied that, as a consequence of the effects of COVID-19,—

  • the entity is unable to, or will experience significant difficulties if required to, provide the document on time; or

  • the entity is unable to adequately assess how its future operations will be affected and the extension will enable it to provide a better document than it would be able to if the extension were not granted.

An extension of up to 3 months may be granted by the relevant Minister (or Ministers) for the following:

  • information on strategic intentions that departments and Offices of Parliament are required to provide under section 38 of the Public Finance Act 1989:

  • statements of intent that Crown entities and companies listed in Schedule 4A of the Public Finance Act 1989 are required to provide under section 139 of the Crown Entities Act 2004:

  • statements of performance expectations that Crown entities, companies listed in Schedule 4A of the Public Finance Act 1989, and some organisations listed in Schedule 4 of the Public Finance Act 1989 are required to provide under section 149C of the Crown Entities Act 2004:

  • statements of corporate intent that State enterprises are required to deliver under section 14 of the State-Owned Enterprises Act 1986.