Up Again New Zealand: Government Relief and Tax


1. Legislative changes: are there any additional processes or support which have been introduced as a response to the pandemic which I may not have considered previously?

There are a number of legislative changes, and certain measures introduced to support businesses during the pandemic. Some of these are outlined below:

Wage Subsidy Scheme: See section on employment issues above.

COVID-19 Small Business Cash Flow Loan (SBCS):

  • The SBCS has been introduced to support businesses and organisations struggling because of loss of actual or predicted revenue as a result of COVID-19. They must have 50 or fewer full-time-equivalent employees. Inland Revenue will administer the payments and repayments of this scheme. Applications will be open from 12 May 2020 to 12 June 2020 inclusive. 
  • Eligible businesses and organisations are entitled to a one-off loan with a term of 5 years. The maximum amount loaned under SBCS is $100,000. The size of the loan depends on the number of full-time-equivalent employees calculated from wage funding. It is $10,000 plus $1,800 per full-time-equivalent employee. 
  • The annual interest rate will be 3% beginning from the date of the loan being provided. Interest will not be charged if the loan is fully paid back within one year. If the loan amount is not paid back in full within a year, then the business will be charged interest for the entire period from the commencement of the loan. 
  • No repayments of principal or interest are required for the first 2 years. After 2 years, the business will be required to make regular payments for both the principal and interest.
  • For more information on SBCS, please see our recent article here.

Business Finance Guarantee Scheme:

  • The government and major banks are implementing a NZD6.25 billion business finance guarantee scheme for small and medium-sized businesses, to provide finance to protect jobs and support the economy.
  • The scheme supports the provision of new bank loans to viable businesses by the government taking on the default risk up to 80% of the loan. Borrowers are still liable and must pay the debt back, with interest, in the usual way.
  • The business must be New Zealand-based with an annual turnover up to NZD80 million.
  • Businesses that were on banks’ credit watch list from 31 January will not be eligible.
  • The loans provided under this scheme will not fund excluded activities.
  • The loan amount will be up to NZD500,000, for term of up to three years.
  • Reserve Bank will provide term funding to banks at a very low interest rate under Term Lending Facility to help the banks support the scheme.

Mortgage Holiday Scheme package -

  • The package will include a six-month principal and interest payment holiday for mortgage holders whose incomes have been affected by the economic disruption from COVID-19.

    Business Debt Hibernation (BDH) regime

  • The BDH regime lets companies and other business entities affected by the pandemic to place existing debts into hibernation for up to seven months.
  • This will involve directors seeking agreement from their creditor to hibernate their debt.
  • There is a threshold test that needs to be passed before directors can seek creditor approval. The threshold to enter the BDH regime is not simple and will require professional advice.
  • If the arrangement is approved, the BDH continues to apply until the expiry of the six-month period, which starts on the date of the approval.
  • An entity can enter into BDH only once.
  • During the period of BDH, with some exceptions, the creditors of a business will not be able to place it into liquidation/
  • For more information on the BDH scheme, please see our recent article.

Safe harbour for directors for their duties under the Companies Act 1993.

  • It introduces a suspension to insolvent and reckless trading laws and provides directors with “safe harbour” from insolvency-related directors’ duties.
  • From 3 April 2020 until at least 30 September 2020 (unless extended at the Government’s discretion), the safe harbour will provide that, when making decisions to continue trading and decisions to take on new obligations, no such decision will result in a breach of duties if the directors, in good faith, are of the opinion that:
  • the company has, or in the next six months is likely to have, significant liquidity problems;
  • those liquidity problems are, or will be, a result of the effects of COVID-19 on the company, its debtors or its creditors; and
  • it is more likely than not that the company will be able to return to paying its debts as they fall due on or after 30 September 2021 (a period of 18 months).

For more information on the safe harbour, please see our recent article.

2. Is there anything else I should look out for?

We will provide regular updates of any significant changes.


3. What is the position with respect to the applicability of emergency tax measures, including

a. what they are and apply to;

b. when they are expected to be phased out on or following a return to business; and

c. whether any transitional periods are likely to apply.

The government has enacted a number of tax changes in response to COVID-19, including giving the Inland Revenue the power to extend timeframes and the introduction of a temporary tax loss carry-back scheme.

The Inland Revenue has announced that for businesses significantly adversely affected by COVID-19 and “unable to pay” their taxes on time, those businesses do not need to pay any tax due now and the Inland Revenue will write-off any penalties and interest that arise as a result of late payment. “Unable to pay” means physically unable to pay or struggling financially.

The tax loss carry back allows businesses that expect to make a tax loss in the 2019/20 year or the 2020/21 year to estimate that tax loss and use it to offset taxable profits in the previous year (i.e. a business can carry back tax losses for one year and may obtain an immediate tax refund). 

4. Are there specific steps that businesses should take to prepare for these tax measures being phased out – for example new timing of

a. payment obligations (and therefore likely pressure on cash flow); and/or

b. filing of returns?

In relation to extended timelines for payments (outlined above) the Inland Revenue has not indicated when these timelines will cease to apply, but businesses will need to demonstrate they are unable to pay.

In relation to filing of 2019 income tax returns, the usual filing deadline has been extended from 31 March 2020 to 31 May 2020.

5. Should the impact of emergency tax measures be reconsidered by businesses – e.g. are there certain legal transactions (such as sales or reorganisations) that parties should preferably postpone or accelerate?

Some of the COVID-19 tax changes should be reconsidered by businesses and may impact on the timing of transactions.

Businesses should consider the possible benefit of the temporary tax loss carry-back rules before undertaking transactions.

In addition, Inland Revenue is proposing a change to allow New Zealand companies the ability to carry forward income tax losses where there has been a breach of shareholder continuity provided the company is carrying on the “same or similar business.” This means that, following this change, a company with tax losses may become more attractive to a potential acquirer, as they may be able to use tax losses after acquisition.

6. Are there any additional measures proposed, in particular any that are targeted at particular sectors (e.g. aviation)?

The Inland Revenue has not announced any specific sector-related tax measures. The introduction of tax depreciation for industrial and commercial buildings should support commercial and industrial real estate owners.

7. Are there any sectors or interest groups that are now putting forward, or may in the near future request, special tax measures?

Some sectors have requested special tax measures, but the Inland Revenue has preferred changes that apply across all sectors.

8. Which taxes might be increased to address the financial burden caused by the crisis, for example,

a. are there political commitments or policy trends that might indicate the likely focus of any tax increase in the future (e.g. to maintain low corporation tax, but to increases taxes on personal wealth)

b. measures to broaden the tax base, such as digital services taxation and a pre-emptive response to the OECD/ G20 Inclusive Framework on BEPS (“BEPS 2.0”)

At this stage, no tax increases have been formally announced. The Inland Revenue has also confirmed that the current COVID-19 situation has not changed its approach to the introduction of a digital services tax.

9. Are there other actions that ought to be considered by businesses in your country e.g.

a. revisit past tax filings to claim carry back of losses;

b. revise or update preliminary tax assessments;

c. claim bad debt relief for VAT output tax

As outlined above, New Zealand has introduced a temporary tax loss carry-back scheme.


10. What do you need to consider in terms of your funding requirements for returning to business and are there any return to business financial assistance packages being made available by government?

A borrower should ensure that any new funding arrangements are permitted under its existing finance documents. 

There are a range of financial assistance packages including the Business Finance Guarantee Scheme and Mortgage Holiday Scheme package for SMEs (see above). 

11. How will funding a return to business, including taking on additional indebtedness, impact on your financial or other covenants?

A borrower should consider:

  • Whether any new funding arrangements are permitted under the terms of its existing finance documents and whether any consents and/or subordination arrangements are required.
  • How any additional indebtedness (and any finance costs associated with it) will be treated in financial covenant calculations and whether any amendments to financial covenants are required.
  • Whether any equity issuance (and the terms of it) are permitted by its finance documents.

12. Are there any remedies such as equity cure or margin ratchets that you should be checking on to provide liquidity to prevent a default or improve their financial position?

Yes. Margin ratchets and equity cure provisions are fairly common. For equity cures, the precise drafting needs to be carefully checked to ensure that the Borrower receives the intended benefit of the injection of equity or subordinated debt.  Borrowers should also consider whether “over-cures” and multiple equity cures are available and plan accordingly.

13. What practicalities do you need to consider in relation to audit requirements?

Borrowers should ensure that they can meet the timeframes for delivering audited financial statements to their financiers under their reporting obligations in their finance documents.

14. What is the process if I need any amendments made or waivers given under my loan documentation (including in respect of financial covenants)?

Borrowers should contact their financiers to discuss. Waivers or amendments will need to be in writing and agreed between the parties. On syndicated facilities, borrowers will need to consider creditor dynamics and whether requisite lender approval can be obtained.