The Government has committed to a multi-billion dollar assistance package for business. We expect there is more to come, including tweaks to what has already been announced.
Measures as at today (25 March) include immediately accessible subsidies and business tax changes that will deliver support over a longer timeframe.
The Government has introduced two subsidies that are accessible now – the Wage Subsidy Scheme and COVID-19 Leave and Self-Isolation Support.
Wage Subsidy Scheme
The wage subsidy scheme is available to employers, contractors, sole traders, self-employed, registered charities and incorporated societies that are significantly impacted by COVID-19.
In order to be eligible, the business must:
- be registered with the Companies Office (subject to alternative tests for the likes of sole traders) and physically located in New Zealand with employees legally working in New Zealand
- have suffered, or be projected to suffer, as a result of COVID-19 at least a 30% decline in revenue relative to the same month last year over any month from January 2020 to the end of the scheme, or a reasonably equivalent month for any business operating less than a year
- have taken active steps to mitigate the impact of COVID-19, and
- use best endeavours to retain and maintain its named employees at 80% of their pre-COVID income.
The subsidy is $585 per employee working more than 20 hours per week and $350 per employee working less than 20 hours per week. The subsidy is paid as a lump sum covering a 12 week period.
This scheme was originally capped at a payment of $150,000 per employer but that cap has now been removed.
The wage subsidy does not have to be passed on to employees in the same way as the leave subsidy. The purpose of it is to support businesses to continue to pay staff, but how that is achieved by each employer will be a matter for each business.
Leave payment scheme
The leave payment scheme was introduced to provide support (via employers) for employees who are required to self-isolate in accordance with the Ministry of Health guidelines, cannot work because they have COVID-19 or cannot work because they are caring for dependents that are self-isolating or sick. Given everyone is now required to self-isolate, we expect the Government will clarify how the scheme will operate in that respect.
The subsidy is the same as the wage subsidy scheme – $585 per employee working more than 20 hours per week and $350 per employee working less than 20 hours per week. Payment is initially for up to 14 days but can be extended.
Unlike the wage subsidy, the leave subsidy must be passed on to the relevant employee in full.
Self-employed are also entitled to the leave payment subject to some provisos, including that they were earning at least the minimum wage and cannot draw an income during the period of self-isolation/illness.
State sector employers cannot receive the leave payment on the basis that they are expected to continue paying employees their normal wages during self-isolation or illness.
How to apply
You should first confirm you are eligible for the relevant subsidy. This essentially operates on a self-assessment basis. However, you will need to declare you meet the criteria for payment as part of your application and payments will be subject to audits and reviews.
You should ensure you can provide evidence of eligibility if questioned, which could include documentation such as revenue comparisons with actual historical revenue figures and/or forecasts, business continuity plans, engaging financial advisors, business specialists or banks or a relevant industry association.
Once you are comfortable you are eligible, applications can be accessed by an electronic application through the Ministry of Social Development’s (MSD) website.
To complete the application form you will need:
- your business:
- bank account, IRD number, New Zealand Business Number (NZBN), and contact details
- your employees:
- names, dates of birth, IRD numbers and employment types (i.e. more or less than 20 hours of work per week), and
- consent that the above is provided as part of the application
- to make a declaration affirming the legitimacy of your application. More details on the declaration for the wage subsidy can be found here, and details on the leave subsidy can be found here.
The requirement to obtain consent from all employees is a major practical impediment for large employers and not realistic in the current environment. We hope that the Government addresses this in the coming days.
MSD is currently advising a five day processing time, once all of the information is received. However, with increasing volumes of applications we expect this will become difficult to sustain.
Tax treatment of wage subsidies
Wage and leave subsidy payments are not taxable to the employer on receipt and are not deductible for the employer when paid to employees.
Payments to employees (including self-employed) remain taxable to them and subject to PAYE, KiwiSaver and other relevant deductions.
GST is not payable on receipt of the subsidies.
Business tax changes
Less immediate assistance will be provided to businesses in the form of tax changes announced on 17 March 2020. These include:
- reinstatement of depreciation deductions for both new and existing commercial and industrial buildings (including hotels and motels) at a 2% diminishing value applying from the 2020-21 tax year
- increasing the threshold for provisional tax from $2,500 to $5,000 applying from the 2020-21 tax year
- increasing the threshold for writing off low value assets to $5,000 for the next tax year, before reverting to $1,000 in the longer term, and
- giving a time-limited discretion to Inland Revenue to remit debit use of money interest on the payment of tax due on or after 14 February, if a taxpayer is unable to pay on time due to the impacts of COVID-19.
These changes aim to support cash-flow, lower compliance costs, stimulate investment and encourage spending.
Aside from the use-of money interest discretion, it is intended that all taxpayers will be able to apply the proposed changes (irrespective of the impact of COVID-19 on their business).
Guidance is still to come on just how the remission of use-of money interest discretion will be applied. We expect that the objective test of disruption to business would be similar to that of the wage and leave subsidies outlined above. It is intended that the Commissioner will be granted this discretion for two years.
UPDATE: 26 March 2020The COVID-19 Response (Taxation and Social Assistance Urgent Measures) Bill containing the announced Business tax changes has now been enacted. The measures introduced are as expected, along with the inclusion of the following two additional measures:
In relation to the use of money interest concessions, we understand that Inland Revenue is currently developing guidance on when a taxpayer would be considered eligible for the remission of interest. In the meantime, preliminary guidance is available here.
- Amendments to the existing R&D legislation, bringing planned R&D refundability measures forward one year to the 2019-20 income year. This is aimed at relieving cashflow problems for R&D businesses and ensuring that R&D is continued in the current environment; and
- Allowing for greater information sharing power by Inland Revenue with a wider group of government agencies, to assist the efficient and effective delivery of the Government’s COVID-19 response.
More to come
The Government announced on Monday 23 March that urgent work is underway on new income support measures for all workers appropriate to how the economy will operate under Alert Level 4. We anticipate this may also result in changes to the wage subsidy scheme (for example the 80% cap may be looked at).
On Tuesday 24 March the Government, Reserve Bank and retail banks announced a major financial support package. We are expecting more specific details of this over the next few days, but in principle this includes measures such as:
- a six month principal and interest payment holiday for mortgage holders and small and medium sized enterprises (SMEs) businesses whose incomes have been affected by the economic disruption from COVID-19, and
- a $6.25b Business Finance Guarantee Scheme for SMEs, to protect jobs and support the economy through this unprecedented time.
Due to the responsive nature of these packages and the unpredictability of COVID-19, we expect further updates in this area, alongside the expected release of the finer details of the above responses.
If you or your business have any questions in relation to the above we urge you to reach out for assistance.
He Waka Eke Noa. We are all in this together.