Tax FAQs

17 April 2020

We have compiled a list of the most common questions we are currently being asked, together with our responses. This list is growing as new issues are being uncovered. The more comprehensive the FAQ list is, the better. As ever there is no such thing as a silly question and collectively we may be able to help demystify and guide you to the right track.

We are here to help, please give your BDO contact a call if you have any questions.

Be safe, be kind.

Information included in this insight was last updated on 17.04.2020


Loss Carry Back

I’m in business as a sole trader, as I am not trading via a company does this mean that I can’t use the new rules to carry back losses?


We don’t have detailed legislation, but the commentary to date suggests that all businesses, regardless of legal form, would be able to use the concessionary treatment. 


The rules refer to the 2019/20 and 2020/21 years, what does this mean?


This is a reference to tax year and the timeframe you calculate your tax position.  Ordinarily a tax year runs from 1 April to the following 31 March.  The 2019/20 for most taxpayers means from 1 April 2019 to 31 March 2020, 2020/21 means 1 April 2020 to 31 March 2021.  A date to 31 March is referred to as a standard balance date.

Taxpayers may apply for a different balance date that ends other than on 31 March.

A balance date between 1 October and the following 31 March is referred to as an early balance date.  One that falls between 1 April and the following 30 September is referred to as a late balance date.  Your balance date will likely have an impact on the new loss carry back provisions and when it is of relevance.  Hopefully the table explain the position a little better:

Balance date 2019/20 tax year 2020/21 tax year Impact on proposed carry back rules
Standard Starts on 1 April 2019 and ends on 31 March 2020. Starts on 1 April 2020 and ends on 31 March 2020. Assumed Covid-19 has greater impact on the 2020/21 tax year.  
Early, say 31 October Starts on 1 November 2018 and ends on 31 October 2019. Starts on 1 November 2019 and ends on 31 October 2020. It is more likely that Covid-19 will impact the 2020/21 tax year. 
Late, say 31 July Starts on 1 August 2019 and ends on 31 July 2020. Starts on 1 August 2020 and ends on 31 July 2021. Covid-19 is more likely to impact the 2019/20 tax year.



Thank you for completing my tax return for the year to 31 March 2020 so quickly.  As expected, there is a tax loss.  It is clear to me that the loss has arisen due to pricing pressures over the year, and nothing to do with Covid-19.  Can I still use the loss carry back provisions when they become law?


Yes, at this stage there is nothing to suggest that the loss carry back provisions are dependent upon proving the loss has arisen because of the impact of Covid-19. 


I am the sole shareholder of a company.  I am also an employee of the company.  Each year I receive a shareholder/employee salary equal to the profits of the company.  The year to 31 March 2020 is a loss, can I carry the loss back to the 2019 year.


We don’t have legislation to rely on here, but we suspect not.  Fundamentally the company has not paid any tax, therefore there is nothing to carry back to.  This is an area we will be submitting on.


My company made good profits in the year to 31 March 2019 and it paid quite a lot of tax.  Unfortunately it has not been so bright for the year to 31 March 2020 and its made losses (and no tax paid). In June 2019, the company paid me a dividend and used all available imputation credits. Will the company be able to carry back the 2020 losses and offset against the 2019 profits and obtain a refund?


This is a difficult question to answer again in the absence of legislation.  Our thoughts are that under the current rules it is not possible to obtain a tax refund if there are insufficient imputation credits (a company can only be refunded income tax to the extent it has imputation credits).  The loss carry back rules are therefore possibly redundant in this situation. Further thinking is needed here and perhaps changes will be needed to the rules around imputation credit accounts. This is an area we will be submitting on.


Calculating depreciation claims on commercial buildings

How do I calculate depreciation that has been re-introduced on commercial and industrial buildings?  Do I need to revalue my building?


Depreciation claims will be based on the historical cost of the building.  You may claim 2% per annum on this cost (on a diminishing value basis).


I bought a commercial building together with the land.  Can I just depreciate the total, as the sale and purchase agreement did not distinguish between the land and building?


Land is not permitted a depreciation deduction; the purchase price will need to be apportioned to isolate the building component part.  Practically speaking, in our experience, the easiest way (and arguably fair and reasonable) is to apportion cost based on the respective rateable values (being those reported at the time acquired).   For example, commercial land and buildings were acquired for $1m (exclusive of GST).  The rateable values were $350,000 for land and $475,000 for the value of capital improvements.  For depreciation purposes, we consider it would be fair to claim depreciation apportioning $575,758 of the original cost to the building (calculated as $475,000/$825,000 x $1m).



Inland Revenue

Can I pay the Inland Revenue via cheque during the lockdown? 


No – Inland Revenue is not accepting cheques for payment of taxes. 

If you cannot pay by another means as a result of the National Alert Level, you should get in touch with Inland Revenue and advise them of this fact. 

You should pay your tax as soon as you are able to do so, and only then will IRD look at remission of penalties/interest. 


I’m a self-employed car mechanic and have applied and received the wage subsidy.  I have heard it is taxable income.  I like to get my tax returns done as soon as I can and now that the tax year (to 31 March 2020) has finished I’m using my spare time now to get this sorted.  Do I need to return all of the 12 week subsidy in the year to 31 March 2020?


No, self-employed persons can spread the amount between the 31 March 2020 and 31 March 2021 tax years.  For example, if you received the wage subsidy on 25th March then only one week of it relates to the year to 31 March 2020.  The remaining 11 weeks are to be reported in the year to 31 March 2021.


Fringe Benefit Tax (“FBT”) – Motor vehicles

Will FBT continue to apply to motor vehicles while the country operates in Alert Level 4?  We provide employees with vehicles that have historically been used privately and are available as such.  With the non-essential travel restriction, and having talked to our team, these vehicles are not currently being used. 


Strictly speaking, “Yes” FBT will continue to apply.  Fringe Benefit Tax (“FBT”) with respect to vehicles applies not on the basis the vehicle is actually used, but whether it is available for private use.  Just because it is not used privately does not preclude the imposition of FBT.

However, if the vehicle is not currently in the employee’s possession, our position is that it is not available (the non-essential travel restriction would prevent an employee from access to the vehicle); no FBT liability here.

If the vehicle is at the employee’s home, then we consider it would remain available for use (albeit not used) and therefore FBT would apply.  We are discussing with employers and, on a case-by-case basis, whether it would be appropriate restricting any use of the vehicle, i.e. formal clarification that the vehicle can neither be used for business nor private purpose, until further notice. 

A formal restriction on use, we would expect, would be sufficient to prevent FBT continuing to apply in the current climate.  Before acting, we recommend confirming that there are no legal complications (for those employees entitled to a vehicle as part of their overall package) and that it is not their only means of transport (they will still need to get groceries).

Please give your BDO contact a call if you would like to discuss.  In the meantime, we’ve attached a sample letter (by way of example only).



Employee allowances – Tax free?

With many employees now working from home, what is the tax position with respect to associated costs (heating, lighting, internet, phones etc)?  As an employee can I start claiming deductions?


No, costs of an employee earning employment income are not deductible.

However, the position is modified if the employer reimburses the employee for costs suffered by the employee (that would otherwise be deductible but for the limitation above).  This is providing the expense is connected to the employment.  In this situation, the reimbursement is a non-taxable receipt to the employee (and the employer is entitled to a deduction).

An expense is connected with an employee’s employment only if:

  • The expenditure is incurred (or the amount is paid) because the employee is performing an obligation required by their employment; and
  • The employee earns employment income through performance of the obligation; and
  • The expense is necessary in performance of the obligation.

We therefore consider that for those employees required to work from home an employer may seek to reimburse, on a tax-free basis, associated costs.

The amount of reimbursement may be estimated, providing it is on a fair and reasonable basis.


Based on the above, “Can an employer substitute existing salary for an allowance, i.e. pay the same amount overall to the employee, but allocate some to a reimbursement of cost?”


Notwithstanding any legal implications of this approach, we do not recommend, what is in effect, a salary sacrifice.  This approach may ultimately “save” the employee PAYE, however from experience this is not in “good faith” and will be challenged as tax avoidance by Inland Revenue.



Exporters and GST – Remedial Action

As an exporter I normally zero-rate all sales to my overseas customers.  Just prior to the lock-down, I’ve received deposits for orders that are due to be shipped in early April.  I’m now not able to send these until a later date (as of yet unknown)?  Has the GST position changed?


Strictly speaking, yes.  You may not be able to zero-rate the transaction without further action. 

Most export sales of goods will be zero-rated for GST purposes.  This is because they have met the criteria to zero-rate, which are:

  • The goods have physically been exported within 28 days of the time of supply (see below); and
  • You, as the exporter, are named as the supplier on the relevant export documentation.

A deposit will trigger the time of supply, and in turn the 28-day countdown.

If the goods are not exported within the 28-days, then GST zero-rating cannot apply and (for those with a “plus GST, if any” contract) you will be seeking recourse from the purchaser (which clearly won’t be easy and is probably commercially not a recommended approach).

The good news is that the Commissioner can apply discretion to extend the 28-day timeframe, if asked.  

We therefore recommend immediate action and contact with Inland Revenue to request an extension (preferably before the 28-day timeframe has passed).  We are confident that the Commissioner will accept the request.

The request does not need to be wordy, include name of registered person and IRD number with a short commentary:

Due to the impact of Covid-19, we are unable to meet the timeframe to zero-rate exports.  We therefore apply to the Commissioner for an extension to properly permit zero-rating.

We have informally discussed this point with Inland Revenue and we do expect a formal remedy to this issue.  However, in the meantime, in our view, this is the best approach.



Business interruption – deductibility of expenditure

Even though my business is not able to currently earn income, can I still claim the on-going expenses as tax deductions? 


As a very general rule a business can claim a deduction, for income tax purposes, for expenditure that relates to earning income (from the business).  We often refer to this as “nexus”.

How does a business say that the ongoing expenses (that don’t just stop because the doors have been forced to close) have a nexus to earning income from that business?  The business has been interrupted.

It’s complicated, but we consider that there is a difference between a temporary closing and the ending of a business activity. 

At this stage, we consider expenses remain deductible providing the interruption is temporary and it is expected that normal business activities will resume.



Low value assets write-off

To help my employees work effectively from home, we’ve bought ten new desks.  The cost was $3,000 plus GST.  Can I claim this as a tax deduction?


Yes, you can.  As an immediate (and welcomed) relief package the low value asset write-off threshold increased from $500 to $5,000 for assets purchased on or after 17 March 2020.

Low-value assets can be written-off for tax purposes providing the cost is less than $5,000.  If you are a GST registered person, cost refers to the GST exclusive amount.  For non-registered persons it is the GST inclusive amount.

Be careful in working this out.  While an asset on its own may fall below the threshold, you are required to consider the total cost if you bought multiple of the same items from the same supplier.  For example, a single desk may cost $250 plus GST, however if you bought 21 from the same place, the relevant cost is the total cost, i.e. $5,250 plus GST, and the threshold exceeded.

From 17 March 2021 the threshold reduces to $1,000.



Depreciation claims on buildings

I have a residential property that is currently tenanted.  I understand that I can now claim depreciation on this, when can I start claiming from?


There is no depreciation claim available for residential buildings.  As part of the Government’s Covid-19 stimulus package depreciation was re-introduced on building; but ONLY FOR COMMERCIAL AND INDUSTRIAL BUILDINGS

If you are the owner of a commercial or industrial building, the rate of depreciation is 2% (diminishing value) and will apply from the start of the 2020/21 income year.  This will be from 1 April 2020 for most taxpayers.



GST and commercial property

As a commercial property landlord I make regular GST payments.  Do I still need to return GST, even though it is unlikely I’m going to receive rental income in the short-term?


There is some complication here, but it largely depends upon whether you are on an invoice basis for GST purposes and the contractual terms of the tenancy agreement.

For commercial rentals, ordinarily a GST liability will arise at the earlier of:

  • Payment; or
  • When payment becomes due.

Therefore, for those persons on an invoice basis for GST, a GST liability will arise even if payment is not received. 

However, we are aware that many tenancy agreements now include a “No Access in Emergency” clause.  It is our understanding that such clauses will result in a “fair proportion of the rent” not being payable.  On that basis the payment is arguably not due, and no GST liability arises.

We have foreseen the obvious cashflow consequences and have discussed the former with Inland Revenue.  We are confident that a landlord can seek to rely on new legislation allowing Inland Revenue to remit interest and penalties on late payments of GST (providing Covid-19 is the cause).



Ring-fencing of tax losses

I own a residential property which has generated good income over the years, however this year with everything that is going on I expect to make a significant loss (my tenant has already indicated that they are unlikely to pay).  Can I use these losses against my employment income and have PAYE refunded?


No, the rules around claiming rental losses changed from 1 April 2019.  From this date, tax losses arising from residential rental activities cannot be used as an offset against other forms of income.  The losses are carried forward and can be used to offset future residential rental income.


contact us