TAX BITES #23 - Covid Tax Issues

About the Author:

MURRAY McCLENNAN

Director at Tax Central
A chartered accountant and a member of the International Fiscal Association and the Society of Trust and Estate Practitioners, Murray has over 30 years experience in tax.

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Depreciation of Commercial Buildings

Commercial buildings may be depreciated again starting in the 2020/21 income year. The standard rates are 2% diminishing value or 1.5% straight-line.

Depreciation is normally based on cost. Where the building was already owned by the taxpayer at the end of the 2010/11 income year, it will be based on the adjusted tax value of the building at that time plus any non-deductible expenditure incurred by the taxpayer on the building from the end of the 2010/11 income year to the start of the 2020/21 income year.

For example, Better Commercial Building Ltd (“BCB”) acquired a commercial building in April 2007 for $1.25 million. At the end of the 2010/11 income year the adjusted tax book value was $1.175 million. In June 2018 BCB spent $785,000 on extending the building.  This included $60,000 for fit out, which was deducted per section DB 65.

At the start of the 2020/21 income year the new depreciable cost base is $1.9 million, being:

• the adjusted tax value of the building at the end of the 2010/11 income year ($1.175 million)

• less the amount of any deductions claimed under s DB 65 ($60,000),

• plus, the non-deductible capital expenditure ($0.785 million)

Write-off of low value assets

Josiah Jones is a sole practitioner accountant.  He and his three staff worked from home during lockdown. Josiah unfortunately spilt coffee over his laptop while trying to multitask in late April.  He purchased a replacement laptop for $1750 (including GST).

Even though the new laptop is a capital asset it may be deducted as a low value asset. The former threshold for low value assets of $500 was increased to $5,000 for property acquired between 17 March 2020 and 16 March 2021. From 17 March 2021, the threshold will be $1,000.

As Josiah is registered for GST, the GST-exclusive cost of $1521.74 may be claimed in full in the 2020/21 income year.

Wage subsidy

Fiona Hudson is the director and sole shareholder of Fiona’s Flowers Ltd, a florist business. The company’s turnover fell dramatically once lockdown began.

The company applied for and received the wage subsidy for Fiona, another full-time employee, and one part-time employee.

1. The company is not subject to tax on the wage subsidy payment received. It relates to wages  paid, that would otherwise (if not subsidised) be deductible (section CX 47).

2. However, the company is not entitled to a deduction for the expenditure, to the extent of the subsidy received (section DF 1).

3. The wage subsidy has no GST consequence (section 5(6D) of the Goods and Services Tax Act 1985).

4. The wages received by the individuals are assessable.

Remission of UOMI

Section 183ABAB has been added to the Tax Administration Act 1994, giving the Commissioner the ability to remit use of money interest charged, where the taxpayer’s ability to pay tax on time has been significantly adversely affected by COVID-19. Use of money interest may be remitted under s 183ABAB if:

• the taxpayer’s ability to make provisional tax payments on or before their due date was significantly adversely affected by COVID-19;

• the due date for the payment was not before 14 February 2020; and

• the Commissioner is satisfied that the taxpayer asked for relief from UOMI interest as soon as practicable and made the provisional tax payment as soon as practicable.

With any late payment of income tax, GST, FBT, source deduction payments etc. I strongly recommend that the taxpayer or  tax agent contact Inland Revenue immediately.

Murray McClennan

Director
Tax Central Ltd
027        244-5365

www.taxcentral.co.nz

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