The COVID-19 outbreak has impacted our customers in different ways. Where a subvention payment for the 2019 tax year was due to be made by 31 March 2020 this may have been interrupted by the COVID-19 shutdown.
Subvention payments due 31 March 2020
For a subvention payment for the 2019 tax year to be valid, two conditions must be met:
- the payment must be made by 31 March 2020
- the two companies must provide Inland Revenue with notice of the subvention payment.
For subvention payments for the 2019 tax year which would otherwise have been due on 31 March 2020, Inland Revenue will allow the subvention payment if the companies:
- agree that they intend to make a subvention payment
- file their income tax returns as soon as practicable, but by 31 May 2020 at the latest
- provide Inland Revenue with notice of the subvention payment by 31 May 2020.
Example: Zeus Technologies Group
Zeus Technologies Group is a group of software companies operating in New Zealand with common ownership and a balance date of 31 March. Zeus Technologies Group intends to make a subvention payment between two of its group companies; Z Sales Co Ltd (the profit company) and Z Development Co Ltd (the loss company). The necessary conditions relating to subvention payments have been met. Z Development Co Ltd has agreed to receive a subvention payment from Z Sales Co Ltd in return for Z Sales Co Ltd bearing its tax loss.
Zeus Technologies Group was due to file its 2019 income tax return by 31 March 2020 as it had an extension of time. However, due to COVID-19 the group was unable to provide its tax agent with its latest tax information and the group was therefore unable to file by 31 March 2020. The Commissioner has indicated that provided Zeus Technologies Group files its return as soon as practicable and before 31 May 2020, any late filing penalties will be waived and the time bar will not be extended (assuming the required conditions are satisfied).
Similarly, as a result of COVID-19, Zeus Technologies Group was also unable to provide the Commissioner with notice of the subvention payment before the due date of 31 March 2020 and Z Sales Co Ltd did not make the subvention payment to Z Development Co Ltd. Zeus Technologies Group files its group tax return on 4 May 2020, including notice of the subvention payment between Z Sales Co Ltd and Z Development Co Ltd.
Z Sales Co Ltd also makes the subvention payment to Z Development Co Ltd on 4 May 2020. As the subvention payment and election (and group tax return) were late as a result of COVID-19 but were made as soon as practicable and before 31 May 2020 the Commissioner will allow the subvention payment.