Many businesses have faced challenging times due to lockdown measures. To help them deal with the COVID-19 crisis, the NZ Government is offering financial support initiatives. These have been created to support businesses and kickstart the economic recovery. There are three schemes available, which can be applied for immediately to cover any short-term financial problems.
The content in this article is based on information from the Treasury, IRD and MBIE websites and was correct at the time of writing, August 2020.
The Government will be partnering with banks to support targeted new bank loans for eligible businesses to help protect jobs and strengthen the economy. The Government will guarantee 80% of the risk with the banks covering the rest.
Loans will be limited to a maximum of $500,000, but the amount a business can borrow will be determined by the bank. Like any loan, borrowers are still liable and will have to pay their debt back with interest.
To be eligible for the BFGS, businesses must have an annual turnover of up to $80 million. They cannot be on the bank’s credit watchlist (as at 31 January 2020) nor engaged in excluded activities.
This scheme allows businesses to offset a loss in a particular tax year against a profit in a previous year, then receive a refund from the tax paid. It means they can carry the loss back to the year before, which can be done before filing their loss-year return.
The loss can be claimed back in one of two ways. Businesses can include the carried-back loss on their tax return to get an automatic refund for overpaid tax or ask for a refund of provisional tax paid for 2020 if carrying-back a loss from 2021.
Shareholder employees of companies electing into the loss carry-back scheme also have up until when their return is filed or due to re-estimate their provisional tax.
Businesses will be able to apply for the scheme if they make a loss or anticipate making one for the 2019/20 or 2020/21 tax year.
Company directors can apply for a 6-month ‘Safe Harbour’ from their duties under the reckless trading and the duty in relation to obligations sections of the Companies Act 1993. The aim is to take the pressure off company directors, give them confidence that their business can survive during the current economic climate, and to avoid them winding up their company prematurely.
It also protects them from personal liability should their company be facing major liquidity problems due to COVID-19. These provisions will expire on September 30th, 2020, but the Government can re-instate the provision quickly should there be a need to do so in the future. However, these changes will not be able to support a business that has no prospects for continuing trade. So, directors need to be aware that they still have to act in the best interests of the company as per their obligations and duties under the Companies Act 1993.