Government support for business – SME’s
The Government has this morning introduced a new suite of measures to provide relief for businesses during the COVID-19 pandemic. Finance Minister Grant Robertson stated that the measures apply and impact on small and medium-sized enterprises (“SMEs”) in particular, and largely relate to tax payments and deadlines, commercial leasing and mortgages, and business advice.
Tax related introductions and changes
1. Statutory tax deadline flexibility
An amendment will be made to the Tax Administration Act 1994 to allow Inland Revenue greater discretionary power to modify timeframes or procedural requirements for taxpayers impacted by COVID-19, including extending deadlines for filing tax returns and paying provisional and terminal tax. The amendment will extend the discretionary power for a period of 18 months.
2. Tax loss carry-back scheme
A loss carry-back scheme will be introduced that will allow businesses to access their previous tax payments as cash refunds; a business will be able to offset a loss in a particular tax year against a profit in a previous year, and receive a refund of the tax paid in the previous profitable year. This mechanism will provide cash to businesses that are, or anticipate, being in loss. The scheme is set to be introduced in a Bill in the week of 27 April 2020.
3. Tax loss continuity rule changes
New changes to tax continuity rules will allow firms to raise new capital without losing the benefit of their existing tax losses. The changes to these rules will apply for the 2020-21 and later income years.
Commercial property matters
As widely discussed, the COVID-19 situation and the current nationwide lockdown during Level 4 has forced closure of all non-essential businesses, preventing businesses from accessing their premises, and in many cases, the practical operation of those businesses. This has had significant impact on many businesses and their revenue, making it more difficult, if not impossible, to meet their contractual obligations to pay rent and outgoings.
New measures are being announced to support stability in commercial property relationships, extending the timeframes required before landlords can cancel leases and mortgagees can exercise their rights of sale and repossession.
In the current standard ADLS lease form, landlords can give 10 days notice to cancel a lease. However, under the new measures, this period will be extended to 30 days, and applies to both the period the tenant is in arrears before the notice is given, and for the period to remedy the breach after notice is given.
In regard to leases, we think that this package misses the immediate and short term issues commercial landlords and tenants are currently facing. The business community is seeking guidance and direction at all levels, including how much rent is currently payable under their lease and in seeking to protect their financial position, where will the line be drawn by landlords in terms of seeking to cancel a lease.
Although blunt instruments can never deliver ideal solutions, this was an opportunity for the Government to give some clear direction as to what steps landlords and tenants should be taking in regard to rent abatement and deferral in varying circumstances. Although not an ideal solution, the Australian Federal Government was quick to see the issue and provide clear guidance to the business community on this with its National Cabinet Mandatory Code of Conduct SME Commercial Leasing Principles during Covid-19 dealing with rental issues and other matters flowing from the business disruption of lockdowns.
With the Government expected to provide further detail about what Alert Level 3 may look like in the coming days, landlords and tenants should pay close attention. Any changes to the list of businesses that can lawfully operate at each alert level, and the legal basis for ongoing restrictions on freedom of movement, will impact legal rights under leases.
In addition to the already announced mortgage deferrals, the Government is also extending the timeframes applicable to commercial mortgages and home loan, and lenders, extending similar notice and remedial provisions from 20 to 40 working days for mortgaged land and 10 to 20 working days for mortgaged goods.
Business Advice
Tailored support services will be provided to businesses free of charge, to help business ensure their business is viable beyond the COVID-19 lockdown, and could range from human resources advice to business continuity planning to financial planning.
The services will be provided by the existing Regional Business Partner Network, along with existing helplines already used by businesses such as those operated by the Employers and Manufacturers Association and the Canterbury Chamber of Employment and Commerce.
When will the changes come into effect?
Legislation enacting the changes announced today will be introduced on April 27 and will apply effectively retrospectively once the Bill is passed.
The changes have been announced with Government recognising that additional support was needed alongside the already announced $20 billion support package, with a focus continuing on cashflow and confidence. This new support package is around $3.2 billion in total, with work also underway to provide further support for businesses and households as the impacts of COVID-19 become clearer.
We recommend business owners discuss the new tax measures and possible implications of the changes with their tax advisers and/or accountants to place themselves in the best position to operate beyond the lockdown.
We will continue to update our website with further detail about these and other changes that affect your business as they are released.
If you have any questions relating to the new changes introduced by Government, or queries generally, please contact Sarah, Jaesen, Mark or Jono