The Government’s business cashflow and tax benefits in response to COVID-19
There is no doubt we are travelling in unchartered waters right now with the COVID-19 pandemic presenting many business challenges.
We spoke to Shane Linehan, a BDO tax partner who looks after Dicker Data’s tax obligations. He said, "This isn’t something businesses have ever experienced before. It’s a constantly shifting situation that needs to be monitored on a day-by-day basis.”With many businesses forced to shut down over the lockdown period, and others directing employees to work from home, employers are acutely mindful of the economic impact the virus will have on their business and the health and wellbeing of their employees - with the full impact on the economy not yet known.
In response, the Government announced a stimulus package on 17 March 2020, which went some way to addressing the likely economic impact. The package focuses on supporting New Zealanders and their jobs from the global impact of COVID-19.
The initial package has been incrementally increased since its first announcement and on 15 April 2020, the Government announced a suite of further new measures to provide relief for small and medium-sized businesses during the pandemic. Finance Minister Grant Robertson says while the Government acted swiftly in response to the crisis, with about $20 billion in support already announced, it recognises that more is needed.
“We have taken decisive action throughout this pandemic to cushion the blow for our businesses and workers - today’s announcement continues that focus. We need our businesses to stay solvent to help with the economic recovery as we emerge from this health crisis.
“Our focus on cashflow and confidence continues through these measures. We have approved a tax loss carry-back scheme that will allow a large number of businesses to access their previous tax payments as cash refunds. Essentially this means a forecast loss in the current financial year can be offset against the tax paid on a profit from last year. We are also changing the tax loss continuity rules to make it easier for firms to raise new capital without losing the benefit of their existing tax losses” Grant Robertson said.
Original financial support
In addition to wage subsidies to help business cashflow, the original package encourages business investment through:
- A temporary increase to low value instant asset write-off from $500 to $5000 for 12 months.
- $2.1 billion to reinstate depreciation deductions for commercial and industrial buildings.
- The facility for businesses to apply for loans under the Business Finance Guarantee Scheme, a collaboration between the Government and banks with the Government guaranteeing up to 80% of loan risk up to $500,000 for eligible New Zealand businesses.
- Other business tax changes including a provisional tax threshold lift, broadening the R&D tax credits refundability criteria, and writing off interest on late tax payments.
The further new measures
- $3.1 billion tax loss carry-back scheme (estimated cost over the next two years).
- $60 million estimated annual savings to business each year from changes to the tax loss continuity rules.
- $25 million in the next 12 months for further business consultancy support for businesses to access free, tailored specialist support for a range of business continuity, finance and cash flow management, HR and staffing, and potentially sector-specific issues they may be facing.
- Greater flexibility for affected businesses to meet their tax obligations.
- Measures to support commercial tenants and landlords.
How can Dicker Data help?
It’s important to recognise that we will overcome this crisis. Maintaining a long-term perspective is essential to avoid making decisions that only benefit the company in the short-term.
In addition to the tax relief and wage subsidy cashflow benefits for business, the ability to deduct the full cost of some assets in the year they were purchased rather than spreading the cost over the life of the asset provides a boost to businesses wanting to invest in technology. An increase to the instant asset write-off threshold from $500 to $5000 could provide a good immediate positive tax impact for businesses purchasing assets in 2020-21 income year.
Dicker Data is proactively working with its partners to help companies in New Zealand get through this uncertain period. By leveraging some of the government incentives, technology improvements could be achieved.
Remote working: increasing numbers of New Zealanders are working remotely to help avoid the further spread of COVID-19. The New Zealand IT channel, in partnership with Dicker Data, can quickly enable businesses to transition to remote working. That includes anything from technology to help staff work comfortably from home, such as laptops, monitors, docking stations, and keyboards, etc, to remote collaboration or other software to enable video conferencing and improved communications.
Microsoft EOS: Microsoft recently announced End of Support (EoS) for Windows 7. This marks the end of security updates for the operating system, despite thousands of Windows 7 devices still being used by New Zealand businesses. Perhaps now is the perfect time for businesses to refresh their technology with modern and more secure devices. Dicker Data and its partner community have a wide variety of laptop, desktop and tablet devices that will help modernise IT environments.
Digital transformation: Many businesses have undergone some level of digital transformation in recent times and are now enjoying the benefits. From increased productivity to reduced costs, and greater customer experience, digital transformation has changed the way businesses around the world operate. The government’s support in maintaining cashflow could present opportunities to invest in the next wave of digital transformation or further legacy technology upgrades.
Talent attraction & retention: Studies show that millennials want to work with the latest technology - which is an incentive to attracting and training top talent. With a limited talent pool in New Zealand, finding, hiring and retaining the best people, including millennials, is becoming more difficult. Many of Dicker Data’s partners support clients in specific industries, such as graphic design and movie production, to attract and retain top talent by providing a working environment with cutting-edge technology. This not only makes the employees’ lives easier but gives them the ability to push the boundaries and continue their own professional development.
Security, backup & disaster recovery: Business continuity during times of uncertainty, is extremely important. If you don’t have robust plans, now could be the right time to invest in security, back-up and disaster recovery systems that may not have been otherwise considered. Data breaches are becoming more common and every business needs to protect their data. Dicker Data’s partners can recommend external auditors to conduct a security audit with the results then used to upgrade systems and ensure the right measures are in place.
In times of crisis, communication becomes even more important than usual. Dicker Data is proud of the relationships we have built with our partner network and want to assure you that we will continue communicating (albeit virtually) in a close and transparent manner. We want to help you to help your customers in overcoming their challenges right now. This includes providing support during sales engagements to ensure deals close or to drive longer-term customer retention.
We are here for you, so please reach out with any questions or concerns on supporting and growing your customer base.