Special report on the Taxation (Annual Rates for 2020–21, Feasibility Expenditure, and Remedial Matters) Act 2021
April 2021
Ability to transfer tax refunds to an amount borrowed under the Small Business Cashflow (Loan) Scheme
(Section 3 of the Tax Administration Act 1994)
An amendment is made to the definition of “tax” in the Tax Administration Act 1994 to ensure that tax refunds owed to a recipient of a loan under the Small Business Cashflow (Loan) Scheme (SBCS) can be transferred by Inland Revenue to their outstanding loan balance at their request.
Background
The Small Business Cashflow (Loan) Scheme (SBCS) opened for applications on 12 May 2020 as a response to the economic impacts of COVID-19. Borrowers are able to access a loan of up to $100,000, with the amount depending on the number of full-time-equivalent employees employed by the business or organisation.
Previously, if a borrower was owed a tax refund, they were unable to request that Inland Revenue transfer this amount toward paying down their SBCS balance. This is because a loan under the SBCS was not included in the definition of “tax” for the purpose of Part 10B of the Tax Administration Act 1994, where transfers of excess tax can be made to another tax type or to another amount due. This meant that tax refunds had to be made to the borrower’s bank account, at which point the borrower had to make a manual repayment to repay their loan under the SBCS.
Key features
The Act provides for an amendment to section 3 of the Tax Administration Act 1994 to allow Inland Revenue to transfer a tax refund owed to an SBCS recipient to their outstanding SBCS balance at the recipient’s request.
Application date
The amendments apply from the date the Act received Royal assent.
Detailed analysis
The Act amends the Tax Administration Act 1994.
Section 3 of the Tax Administration Act 1994
The definition of “tax” in section 3 of the Tax Administration Act 1994 is amended for the purpose of Part 10B to include an amount payable in relation to a loan made under the SBCS. The amendment allows Inland Revenue to transfer a tax refund owed to an SBCS loan recipient to their outstanding SBCS balance at the recipient’s request. This simplifies the process for a loan recipient who wants to use a tax refund they are owed to pay down their SBCS loan balance.
The purpose of the amendment is to reduce compliance costs for loan recipients who want to offset a tax refund against their SBCS balance. Instead of a loan recipient receiving a refund before using it to make a manual repayment of their loan, the recipient may choose for a tax refund to be directly transferred to their outstanding SBCS balance. This amendment does not give Inland Revenue authority to make a transfer without the recipient’s permission.