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Extension to SBCL Scheme & Covid-19 Variations No1 and No2

By November 15, 2020 No Comments

Extension to SBCL Scheme

The Government has announced the extension of the Small Business Cashflow Loan Scheme for another three years, meaning that applications can now be made up until 31 December 2023.

With the timeframe extension also comes two other notable changes to the scheme:

  • If the loan is fully repaid within two years, no interest will be charged (presently one year)
  • The use of the loan funds will no longer be restricted to core operating expenditure, extending to the likes of capital expenditure for example.

The other existing features of the scheme remain the same:

  • It is for businesses with 50 or fewer full-time-equivalent employees
  • They must have been in business on 1 April 2020 and have experienced a 30% decline in revenue as a result of Covid-19 restrictions
  • The maximum amount that can be borrowed is $10,000 plus $1,800 per full-time-equivalent employee and only one amount can be drawn down
  • The loan period is for five years, no repayments are required for the first two years, and the interest rate is 3% from the date of the loan being provided (unless fully repaid within two years).

Covid-19 variation No1

COV 20/11 – ‘Variation of section 15D(2) of the Goods and Services Tax Act 1985 for applications to change GST taxable period’ has been issued.

The variation is in essence directed towards those registered persons, who due to the impacts of Covid-19 (perhaps the need to obtain refunds sooner) wish to change from a six-monthly filing period to monthly filing periods.

Presently section 15D(2) acts to specify when a change in filing period will take effect, being the end of the taxable period in which the relevant application is made. So, a Mar/Sep filer requesting a change today, will not commence monthly period filing until 1st April 2021.

COV 20/11, which has an application period of 4th November 2020 to 31st March 2021, overrides the present section 15D(2) effective date, to make the change effective from the start of the taxable period in which the change request application is made instead – so our filer would now have their monthly filing periods commencing 1st October 2020.

Covid-19 variation No2

Our second Covid-19 variation for the week, is COV 20/12 – ‘Variation in relation to the definition of ‘finance lease’ in s YA 1 of the Income Tax Act 2007’.

I’m sure you’ve all had the scenario of determining whether your clients new vehicle lease should be defined as an operating lease or a finance lease – the former having the consequence that you simply claim the income tax and GST deductions as you go in respect of each payment made; the latter akin to a vehicle purchase – claim all the GST upfront and then interest costs and depreciation deductions annually.

Assisting with defining the nature of your client’s lease, is the section YA 1 definition, which includes:

finance lease means a lease of a personal property lease asset entered into by a person on or after 20 May 1999 that — (b) when the person enters the lease or from a later time, involves a term of the lease that is more than 75% of the asset’s estimated useful life as defined in section EE 63 (Meaning of estimated useful life):

In this regard, Covid-19 may have seen lessees impacted by the pandemic, approach their lessors for an extension to the previously agreed lease period. From a tax perspective, this extension could have the consequence of converting an operating lease to a finance lease, due to the extended period of the lease now exceeding the 75% estimated useful life threshold.

To prevent such consequences, COV 20/12 will operate to provide that such leases continue as operating leases, where all of the following conditions are satisfied:

  • The lease was entered into before 14 February 2020
  • The lease term was not more than 75% of the estimated useful life when the lease was entered into
  • The lease term is not extended more than 18 months beyond the end of its term as at 14 February 2020
  • The lease was extended because, in the period between January 2020 and 31 March 2021, the lessee’s business has experienced a significant decline in actual or predicted revenue which means the lessee had difficulty satisfying their existing lease agreement, and that decline in actual or predicted revenue is related to Covid-19.

COV 20/12 applies for the period 5th November 2020 to 31st March 2021.

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