Overview and Disclaimer
There are a lot of questions around the Governments Financial Support Schemes for Businesses and Employees.
Disclaimer: this article is best endeavors at this stage due to continual developments in this space. We will not be liable if you act or make decisions based on this information.
There are continual updates (almost on a daily basis) as details about the schemes emerge. So be sure to check on this page often. We will endeavor to update this on a daily basis (as we ourselves understand and digest the information).
This article is divided into 5 components.
- Current Updates
- Wage Subsidy
- Leave Payments
- Tax Reforms To Help Businesses
- Other Income Support – Help With Essential Costs
If you are unsure or need assistance for your business – please contact us here.
Current Discussions Awaiting Further Details
Rent Increases: there is a freeze on rent increases. Regardless of when notice of a rent increase was provided, no increase is permitted if the effective date is after the date this law comes into effect.
End-of-Tenancy/Evictions: Moving house is unlikely to be considered ‘essential’ during the lock-down. Fixed-term and periodic tenancies will not end unless specific grounds applying (e.g. the tenant wants the tenancy to end). Tenants cannot be evicted during the lock-down, except in very limited circumstances.
Buyers/Sellers: The Law Society is recommending settlement dates are delayed as sellers will be unable to provide vacant possession, and buyers will be unable to move in
Six Month Mortgage Holidays
The package will include a six month principal and interest payment holiday for mortgage holders and SME customers whose incomes have been affected by the economic disruption from COVID-19.
Short Term Credit
The Business Finance Guarantee Scheme will provide short-term credit to cushion the financial distress on solvent small and medium-sized firms affected by the COVID-19 crisis.
The scheme will include a limit of $500,000 per loan and will apply to firms with a turnover of between $250,000 and $80 million per annum. The loans will be for a maximum of three years and expected to be provided by the banks at competitive, transparent rates.
Winter Energy Payments
Doubling the 2020 Winter Energy Payment for Superannuitants and main-benefit recipients from 1 May to 1 October to make sure our most vulnerable are able to heat their homes particularly during a time when over-70s are to remain at home.
Important note: The subsidy is being administered under a high trust model and employers will not be asked for verification before the subsidy is approved. However MSD will have the ability to check applications and verify information at a later date. Where false or misleading information has been provided, employers can be subject to fraud investigation.
Following Prime Minister Arden’s announcement on 23 March 2020, there have been important changes to the Wage Subsidy Scheme. Our working understanding is:
· Every organisation in New Zealand is able to apply for the Wage Subsidy including employers, contractors, sole traders, self-employed people, registered charities, incorporated societies, non-governmental organisations and post-settlement governance entities;
· The Wage Subsidy can be applied in respect of all employees for the 12-week period starting 17 March 2020, (there is no longer a cap of $150,000 per organisation);
· New businesses (e.g. that are less than one year old) and high growth firms (e.g. firms that have had significant increases in revenue) will be eligible. They will need to demonstrate the revenue loss assessment against a similar time period, for example comparing March 2020, to January 2020; and
· The other conditions of eligibility remain the same as before.
For total clarity, this means that an organisation can claim NZ$7,029.60 for a full time employee and NZ$4,200 for a part time employee (less than 20 hours per week). The total amount is paid out in a lump sum that covers a 12-week period, and there is no longer a cap of NZ$150,000 per organisation.
If an organisation has already applied for, and been granted, the Wage Subsidy for all its employees and the Ministry of Social Development (MSD) has capped the amount paid, it doesn’t need to do anything further because MSD will top up the difference.
Those that have applied for the Wage Subsidy and filled in only enough staff details to meet the previous NZ$150,000 cap will be able to reapply for a top up in relation to additional employees once the first round of subsidy has been used up.
A Reminder On Eligibility
The other eligibility criteria remain in place. Organisations must:
· Confirm a minimum revenue decline of 30% (actual or forecast) for any month between January 2020 and 9 June 2020, compared to the same month in 2019 (or a recent month for those operating for less than a year or high growth businesses).
· Confirm that you are taking active steps to mitigate the financial impact of COVID-19 on your business.
· Active steps might include activating a business continuity plan and seeking advice and support from a bank, financial advisors, the Chamber of Commerce, a relevant industry association, or a Regional Business Partner programme.
· Commit to making best efforts to retain employees and pay them a minimum of 80% of their normal income for the subsidised period.
ABC Limited has 40 full-time employees. It applied for the Wage Subsidy when it was first announced on 17 March 2020, filling in the details of all 40 employees. ABC Limited received a payment from MSD on 19 March, for $150,000. Because ABC Limited is now eligible for a Wage Subsidy of $281,184 the MSD will make an additional payment of $131,184 to ABC Limited.
XYZ Limited has 40 full-time employees. It applied for the Wage Subsidy when it was first announced on 17 March 2020. XYZ Limited only entered the details of 22 employees in its application form, in order to reach the $150,000 cap. When the Wage Subsidy has been spread over all 40 employees (at $585.80 per week per employee) the original $150,000 is used up after 6 weeks. After 6 weeks, XYZ Limited should apply for a Wage Subsidy top up, providing the details of the additional 18 employees.
LMP Limited has 100 full-time employees and 50 part-time employees. LMP Limited is potentially eligible for a Wage Subsidy of $912,960. LMP Limited implements its business continuity plan and establishes that it is able to commit to retaining all 150 employees for the next 12 weeks. LMP Limited makes an application for all 150 staff.
HIJ Limited has 500 full time employees who are on average paid $52,000 each per year. HIJ Limited anticipates it will suffer over a 50 percent reduction in revenue. HIJ Limited has activated its business continuity plan and undertaken forecasts based on its cash reserves and available credit lines. HIJ Limited believes that it could afford to retain its full workforce if its salary costs were halved; that is, it is only able to pay each staff member a maximum of $500 per employee per week if the business is to survive. HIJ Limited applies for the Wage Subsidy and receives an additional $585.80 per employee per week. Over the 12 week period, HIJ Limited continues to pay all employees their full weekly salary of $1,000; being funded $585.80 using the Wage Subsidy and $414.20 from its own funds.
LMNO Limited has 10 full-time employees, each earning $104,000 per annum. LMNO Limited therefore has a weekly salary cost of $20,000. LMNO Limited is anticipating a sharp reduction in revenues and is potentially facing having to make 4 staff members redundant. After discussing the situation with all its staff members, all staff members agree that they would each be prepared to take a 20 percent reduction in salary for the duration of the COVID-19 issues, in order for all staff to keep their jobs. With the agreement of staff, the weekly salary cost reduces to $16,000 (or $192,000 over twelve weeks). LMNO Limited is able to apply for the Wage Subsidy; it receives a Wage Subsidy of $70,296 for the 12-week period. LMNO Limited pays its staff using the Wage Subsidy of $70,296 and $121,704 of its own funds.
*Please note in respect of all examples that these are gross amounts. All payments to employees remain subject to PAYE and other usual deductions.
General & Tax
With the Alert Level 4 – does this mean I am eligible to receive both the Wage Subsidy and the Leave Scheme?
No. The Leave Scheme is only available to people that:
- need to self-isolate (as determined by the Ministry of Health guidelines)
- If you arrived in New Zealand from any country in the last 14 days, you should self-isolate for 14 days from the date you departed the last country you visited. If you arrived more than 14 days ago, you do not need to self-isolate.
- If you have been in close contactwith someone confirmed with COVID-19, you should self-isolate for 14 days from the date of contact.
- cannot work because they are sick with COVID-19, or
- cannot work because they are caring for dependents who are required to self-isolate or are sick with COVID-19.
I am working from home and getting paid more than 80% what I normally would – can I some how get the wage subsidy?
No. If you are getting more than 80% of your wages then you are not eligible for the wage subsidy. You may however be eligible for some income support through Work and Income
Is the wage subsidy taxable income to me?
If you are:
- An employee – the wage subsidy is sent to your employer. The employer is to pay you the normal (negotiated) wages during COVID-19 disruption. Your normal (negotiated) wages are taxable as per normal. The wage subsidy is therefore taxable when paid by the employer.
- An employer (who pays staffs through PAYE):
- The wage subsidy paid to the employer is not taxable. It is excluded income under Section CX 47 Income Tax Act.
- It is not deductible when paid by the employer as part of wages to employees.
- The leave payment is not subject to GST. An order in Council is being drafted to treat it as exempt (Section 5(6E)(B) (iii GST Act).
- The leave payment for self isolation paid to employees or self-employed persons is subject to tax as it is paid to replace taxable income.
- It is vital to note at each payday what the portion of the wage subsidy payment was to your employees.
- Sole Trader / Self Employed / Shareholder Employees
- Disclaimer: This is yet undetermined by the IRD however we believe one of the two scenarios will apply:
- Taxable Business Income: For sole traders and self-employed individuals, the taxable income is usually determined based on the profit (profit allocation) you receive for the financial year. The subsidy may be added as revenue to your business. When the profit is determined at the end of the financial year, profit will (inherently) include wage subsidy – tax will be paid on profit.
- Excluded Business Income But Taxable Income for the Individual: Another scenario maybe that because the wage subsidy is paid under Your IRD number, tax may apply on it directly. This means the wage subsidy may be considered a excluded income for your business activities but considered taxable income under your personal IRD number.
- Both of the above scenarios achieve the same outcome and is equitable.
Is there GST on the wage subsidy?
- It is not subject to GST. An order in Council is currently being drafted to treat it as exempt (Section 5(6E)(B) (iii GST Act)
If I’m self-employed do I have to pay tax if I receive a leave payment because I am in self-isolation?
This payment will be treated as income for tax purposes.
If I’m an employee do I need to pay tax if I receive a leave payment because I am in self-isolation?
The leave payment will be paid to your employer, and you will receive it like normal wages. This means it’s subject to the usual PAYE, Student Loan, KiwiSaver deductions, etc.
If, as an employer I am receiving the leave payment on behalf of an employee because they are in self-isolation, do I have to pay GST?
No – it will be treated as exempt from GST.
As an employer do I have to keep paying Kiwisaver?
This depends on the employee. If the employee applies for a kiwisaver holiday or opts out then no you do not have to provide the employer contribution.
If the employee continues – then as an employer – you will continue to pay the kiwisaver employer contributions every pay cycle as normal.
If I’m an employer of a registered charity, incorporated society, non-government organisation, or post settlement governance entity am I entitled to apply for the wage subsidy for my employees?
Yes, you can apply for the wage subsidy if your business has been adversely affected as a result of COVID-19 and you are struggling to retain your employees.
If I’m an employer of a registered charity, incorporated society, non-government organisation, or post settlement governance entity am I entitled to apply for the leave payment for my employees?
Yes, you can apply for the leave payment if your employees are required to self-isolate because of Ministry of Health Guidelines and cannot work from home. Employees may not be able to work from home because:
- of the nature of their occupation e.g. trades people or you cannot provide employees the ability to work from home e.g. no access to laptops.
- they have been diagnosed with COVID-19
- they are caring for dependents.
If your employee is diagnosed with COVID-19, do they have to use their accrued sick leave before they are eligible for the COVID-19 leave payment?
Employees do not need to use their sick or annual leave entitlement before you can apply for the COVID-19 leave payment – it can be applied for right away. You can have a conversation with your employee about whether they would prefer to use any accrued sick or annual leave first, rather than the COVID-19 leave payment as there may be cases where the employee would receive more through their own sick leave than the COVID-19 payment.
What does registered and operating in New Zealand mean?
This means that a business is:
- registered with the New Zealand Companies Office, and
- physically located in New Zealand, and
- their employees legally work in New Zealand.
Sole traders are not required to be registered with the New Zealand Companies Office, but must have:
- a personal IRD number for paying income tax and GST, and
- government licences and permits for their business needs, and
- qualifications or registrations for their trade or profession.
Sole traders must still meet the requirements to be physically located and legally working in New Zealand.
What does legally working in New Zealand mean?
Legally working in New Zealand means a person is both working in New Zealand and is legally entitled to work in New Zealand. A person is legally entitled to work in New Zealand if they:
- are a New Zealand or Australian citizen (including a person born in the Cook Islands, Niue or Tokelau), or
- have a New Zealand residence class visa, or
- have a New Zealand work visa or a condition on their New Zealand temporary visa that allows them to work in New Zealand.
For more information, see: https://www.employment.govt.nz/starting-employment/right-to-work-in-new-zealand/
What does a 30% decline in revenue mean?
This means a business has experienced a 30% decline in:
- actual revenue, or
- predicted revenue (e.g. for businesses who have seen a reduction in bookings such as accommodation providers), and
- that decline is related to COVID-19.
The business must experience this decline between January 2020 and 9 June 2020.
Definition of revenue
Revenue means the total amount of money a business has earned from its normal business activities, before expenses are deducted.
Determining a decline in revenue
To determine a decline in revenue, the business must compare one month’s revenue against the same month the previous year (e.g. February 2020 compared with February 2019). The revenue of the month in the affected period must be at least 30% less than it was in the month it was compared against.
Businesses operating for less than a year
Where a business has been operating for less than a year, they must compare their revenue against a previous month that gives the best estimation of the revenue decline related to COVID-19.
What are active steps to mitigate the impact of COVID-19?
A business must take active steps to mitigate the financial impact of COVID-19 on their business. This could include activating their business continuity plan and seeking advice and support from:
- their bank
- the Chamber of Commerce
- a relevant industry association
- the Regional Business Partner programme.
What does retaining affected staff mean?
Employers are required to agree that, for the duration of the subsidy, they will make best efforts to:
- retain the employees the subsidy was paid for, and
- pay those employees a minimum of 80% of their normal wage or salary.
The subsidy is being administered under a high trust model and employers will not be asked for verification before the subsidy is approved. However MSD will have the ability to check applications and verify information at a later date. Where false or misleading information has been provided, employers can be subject to fraud investigation.
To receive the COVID-19 Wage Subsidy, the employer must agree:
- that they meet the following subsidy eligibility criteria:
- the business is registered and operating in New Zealand
- their business has experienced a minimum 30% decline in actual or predicted revenue over the period of a month when compared to the same month last year (or a reasonably equivalent month for a business operating less than a year) and that revenue loss is attributable to the COVID-19 outbreak
- they have taken active steps to mitigate the financial impact of COVID-19 on their business activities
- the employer will make best endeavours to retain the named employees and pay them a minimum of 80% of their normal wages or salary for the duration of the subsidy
- the employer has discussed the application with the named employees, who consent to the information in the application:
- being provided to MSD; and
- being used by MSD, and shared with other agencies, to make decisions about the application, and to review and audit any subsidy granted
- the employer consents to the information in the application being verified with other agencies
- the employer is aware that they may be audited, and if they provide false or misleading information, they may be investigated for fraud
- the employer will notify if circumstances change that affect their eligibility
- the employer will repay any amount to which they are not entitled
Reviewing decisions to decline the subsidy
Decisions to decline the COVID-19 Wage Subsidy are not made under the Social Security Act 2018 and are not covered by the usual Review of Decision guidelines.
If an employer wishes to review the decision to decline the subsidy, that decision should be reconsidered. This review should be based on whether an ‘informed’ decision was made and should consider the following:
- whether all relevant information obtained, and
- whether the appropriate options and implications were considered, and
- whether the decision was made at the appropriate level of delegation.
Self-isolation is an important way to slow the spread of COVID-19. From 17 March 2020 the COVID-19 Leave Payment will be available to support people financially if they:
- need to self-isolate (as determined by the Ministry of Health guidelines),
- cannot work because they are sick with COVID-19, or
- cannot work because they are caring for dependents who are required to self-isolate or are sick with COVID-19.
The COVID-19 Leave Payment will be available for 8 weeks from 17 March 2020. Employers will be able to apply for this more than once.
It will be paid to employers who have eligible employees and they must pass the payment onto their employees in full.
Who can get it
If you’re an employer, contractor, sole trader or self-employed, you may qualify to get the COVID-19 Leave Payment.
COVID-19 Leave Payment covers full-time, part-time and casual employees, and contractors who are legally working in New Zealand and who:
- need to self isolate in line with Ministry of Health Guidelines and have registered as needing to self-isolate with Healthline, cannot work from home and their self-isolation is not because they left NZ since the travel restrictions on 16 March 2020 and have since returned or
- cannot work because the person has been diagnosed with COVID-19 or
- cannot work because they are caring for dependents who are required to self-isolate or who are sick with COVID-19
How much you can get
The COVID-19 leave payment will be paid at a flat rate of:
- $585.80 to a person working 20 hours or more per week
- $350.00 to a person working less than 20 hours per week.
Employers receiving the payment for employees who are required to self-isolate can receive it for 14 days. As people may be required to self-isolate more than once, employers will be able to apply for this on an ‘as needed’ basis. It can be paid for the entire period an employee is sick (or looking after a dependent person who is sick) with COVID-19 but the employer must apply every 14 days.
Using paid leave entitlements or COVID-19 Leave Payment when self isolating?
You and your employee can agree to use any form of paid leave (eg annual leave) to cover their period of self-isolation.
However, employees aren’t required to have used any or all their paid leave entitlements before they can receive this payment.
Eligible employers and employees
When applying for the Leave Payment the employer will consider whether:
- the employee was legally working for their employer at the time they decide to self-isolate; and
- they were expected to work for the period of self-isolation.
Self-employed people who are legally working in New Zealand are eligible for the payment if they:
- are usually earning the minimum wage when they decide to self-isolate; and
- were expecting to work for the period of self-isolation; and
- cannot draw an income for the period of self-isolation.
Some people aren’t eligible for the payment, including:
- self-employed people not earning at least the minimum wage
- people not legally working in New Zealand
State sector employers cannot receive the payment as it is expected they will pay employees their normal wages through periods of self-isolation. State sector employers include: Government agencies, crown entities eg Kāinga Ora, ACC.
The following employers can access the COVID-19 Leave Payment:
- Early Childcare Centres
- Non-Government organisations
- Tertiary Education Institutions, eg:
- Polytechnics/Institutes of Technology
How to apply for the Wage Subsidy and Leave Payment Scheme
If you are an employer, use this link to apply.
If you are self-employed / a contractor, use this link to apply.
To prepare for the application process, you will need to:
· Have proof that you are registered and operating in New Zealand, and that your employees are legally working in New Zealand;
· Be comfortable that you meet the eligibility criteria and can agree to the declaration with MSD;
· Collect your bank account, IRD number, New Zealand Business Number (NZBN) and organisation contact details; and
· With employee consent, collect employees’ names, dates of birth, IRD numbers and employment types (i.e. more or less than 20 hours of work per week).
Business Tax Reforms
Three of the measures announced will apply from the 2020/21 income year. This means the application date changes based on the balance date used by the business. The application dates for common balance dates are listed below:
December: 1 January 2020
March: 1 April 2020
June: 1 July 2020
September: 1 October 2020
Low value asset write-off
The ability for businesses to claim immediate deductions for low value assets up to the value of $5,000 will be a welcome incentive to invest in assets. This comes at a time when many businesses may be investing in technology assets to ensure that employees are able to able to work from home if needed. The existing tax rule allows an immediate deduction for assets up to a value of $500; noting that there are some caveats to this rule which we expect will also apply to the new $5,000 threshold:
If multiple assets with the same depreciation rate are acquired from the same supplier at the same time, the $5,000 threshold applies across all the assets acquired (it is not a per asset threshold);
If the asset being acquired actually forms part of another item of depreciable property an immediate deduction is not available.
This change is a temporary measure which applies only for the 2020/21 income year. From the 2021/22 income year, the threshold will move back to $1,000, which is still a significant improvement on the existing $500 threshold (which has not been increased since 19 May 2005).
For businesses with a 31 March, or earlier balance date, these changes will essentially be effective almost immediately (or retrospectively), but businesses with late balance dates (for example June or September) will need to wait for the initiative to take effect.
Reintroduction of building depreciation
Most buildings have not been eligible for tax depreciation since 2011; however with effect from the 2020/21 income year, certain buildings will once again be able to be depreciated using the diminishing value method at a rate of 2 per cent per annum. This will be available for commercial and industrial buildings (including hotels and motels), but not residential buildings.
Importantly, any seismic strengthening costs are also eligible to be included in the depreciable value of commercial and industrial buildings. It is noteworthy that this is a permanent rather than temporary measure.
For those working in tax back in 2010, you may recall that the removal of tax depreciation from buildings had an unexpected negative impact on financial reporting results; as the removal of tax depreciation resulted in deferred tax liabilities needing to be recognised upfront. For businesses still owning buildings from 2010 there may be a positive financial reporting outcome as a result of this reinstatement of depreciation. We will prepare and share separate guidance on the financial reporting implications of the building depreciation change.
Use of money interest changes
Businesses who have found themselves making tax payments late as a result of being “significantly adversely impacted by COVID-19” will be able to apply to Inland Revenue to have any use of money interest on late tax payments remitted by Inland Revenue. There is no indication that there will be any changes to penalty rules. The application process and criteria are still to be developed and publicised in the coming weeks, however any payments due on or after 14 February 2020 will be eligible for the new rule. Obviously it is important that as much tax as possible continues to be paid to Inland Revenue on the correct due date, therefore we expect there will be strict criteria to be met.
Provisional tax rules
Currently any taxpayer with a residual income tax liability (essentially income which is not correctly taxed at source) of $2,500 is required to pay provisional tax. This puts compliance costs on taxpayers who have relatively modest tax liabilities. From the 2020/21 income year this threshold will be increased to $5,000.
While not appearing significant, it is anticipated that this could remove upwards of 95,000 taxpayers from the provisional tax rules.
Help with Essential Costs
If you’ve lost your job, can’t work at the moment or your income has been reduced, you may be able to get a benefit or some other financial help from Work and Income.
If you’re struggling to meet your living costs or had an unexpected bill we might be able to help you, even if you’re working. Even if you don’t think you qualify, contact us to talk about your situation.
We may be able to help with urgent costs like:
- Accommodation costs (rent, mortgage, board)
- Power, gas and water bills or heating
- Medical and dental costs
Sources: Deloitte https://www2.deloitte.com/nz/en/pages/tax/articles/ https://workandincome.govt.nz/products/a-z-benefits/covid-19-support.html?utm_source=business.govt.nz&utm_medium=newsletter&utm_campaign=special_cv_edition#null https://covid19.govt.nz/government-actions/financial-support/ https://www.health.govt.nz/our-work/diseases-and-conditions/covid-19-novel-coronavirus/covid-19-novel-coronavirus-health-advice-general-public/covid-19-self-isolation https://www.beehive.govt.nz/release https://www.ird.govt.nz/Updates/News-Folder/covid-19-novel-coronavirus---your-questions-answered