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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 (3 April) include immediately accessible subsidies and business tax changes that will deliver support over a longer timeframe.
Wage subsidy scheme available now
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 and operating 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
- provide the undertakings required to retain and pay your employees during the subsidy period.
The subsidy is $585.80 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 purpose of the scheme was always to help employers pay staff but further updates on 27 March made it explicit that the subsidy can only be used in order to meet the wages and salary of those employees who are named in the application. Any employers receiving the subsidy should ensure that there is a clear audit trail to demonstrate the use and application of those funds in respect of wages and salary.
Updated undertakings required for the wage subsidy
In addition to the eligibility criteria above, for all wage subsidy applications that are made after 4pm on 27 March 2020, the business must also undertake that it:
- acknowledges that the subsidy does not override its employment law obligations
- will not make any changes to its obligations under any employment agreement, including to rates of pay, hours of work and leave entitlements, without the written agreement of the employees named in the application
- will retain the employees named in the application for the subsidy period
- will not unlawfully compel or require any of the named employees to use their leave entitlements during the subsidy period
- will only use the subsidy for the purposes of meeting its named employees ordinary wages and salary
- will use best endeavours to pay at least 80% of each named employee’s ordinary wages or salary
- will pay at least the full amount of the subsidy to the employee (except that nothing requires an employer to pay an employee more than their lawfully agreed wages).
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.
The requirement to obtain consent from all employees is a major practical impediment for large employers and not realistic in the current environment. Furthermore, this requirement continues to be included in the latest updates (as at 28 March 2020) despite the Privacy Commissioner’s advice as at 26 March 2020 that consent was unnecessary.
We recommend that employers take a practical approach to this requirement and do what they can to advise employees of the application and of the information that will be shared for the purposes of that application.
MSD is working to process wage subsidy applications as quickly as possible however there are reports of delays in processing. As at close of business 2 April, $4.8b has been paid to employers under the wage subsidy scheme.
New leave payment scheme for essential workers
The Government has developed a scheme to cover essential workers who are required to take leave for COVID-19 related reasons. It will be paid through the employer at the same rates as the wage subsidy scheme: $585.80 per week for fulltime employees (working more than 20 hours per week) and $350 for part-time employees (working less than 20 hours per week).
Employers will need to pay employees either their usual weekly income, if it is less than the applicable rate, or:
make their best endeavours to pay at least 80% of the employee’s usual income, or
at a minimum, pay the full leave subsidy rate if a higher payment is not possible.
The scheme will apply to essential workers:
who are self-isolating in accordance with public health guidance because they (or a dependent they need to care for) have contracted the virus or have come into contact with someone who has contracted the virus
are deemed at higher risk (or have household members who are deemed at higher risk) if they contract COVID-19 and, as such, should self-isolate for the duration of the lockdown (and potentially longer).
If employers are able to pay employees using leave entitlements or special leave without the use of the subsidy, they should continue to do so.
Payments will be made four-weekly. Businesses can re-apply at the end of each four-week period and make new applications for employees at any time.
The scheme will open at midday on Monday 6 April 2020, at which time further guidance is expected on how to apply and what it means to be “at higher risk” of contracting COVID-19.
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 and contained in the COVID-19 Response (Taxation and Social Assistance Urgent Measures) Act. 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
- 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
- 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, 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 understand that Inland Revenue is currently developing its thinking on this topic but in the meantime, preliminary guidance is available here.
More to come
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.