A Wage Subsidy was available to support all employers, including sole traders, who have been significantly impacted by COVID-19. The Wage Subsidy Scheme ended on 9 June and was replaced by the Wage Subsidy Extension. The Extension ended on 1 September 2020.
Is my business eligible to get the wage subsidy?
Businesses will be eligible for the subsidy where they have experienced a 30% decline in actual or predicted revenue related to COVID-19. For example, the revenue for June was predicted to be $100,000, but it now looks like it will be 30% less than this due to a reduction in bookings, sales etc.
Before receiving a subsidy, you must show you have taken active steps to manage the financial impact of COVID-19 on your business. This might include drawing from your cash reserves (as appropriate), talking with your bank, making an insurance claim, or activating your business continuity plan.
What type of businesses are included in the wage subsidies package?
Wage subsidies are available to all businesses significantly impacted by COVID-19, including:
- employers that are struggling to retain employees
- sole traders
- existing businesses
- registered charities
- non-government organisations
- incorporated societies
- post settlement governance entities
- new businesses less than a year old
Which employees are eligible for the subsidy?
- All employees are eligible for the subsidy.
- If they work 20 hours or more per week they receive $585.80 per week.
- If they work less than 20 hours per week they receive $350.00 per week.
Is there a maximum amount of assistance a business can receive?
There is no maximum total amount a business can receive for wage subsidies. However, the maximum that employers will receive per employee is $7,029.60 for a full-time employee and $4,200 for a part-time employee, covering the 12-week period.
The Government’s 12-week wage subsidy is paid in one lump sum to the employer.
How much do I need to pay my employees if I am receiving the subsidy for them?
If you are receiving the COVID-19 Wage Subsidy, you must try your hardest to pay the employee named in your application at least 80% of their usual wages. If that isn’t possible, you need to pay at least the subsidy rate (i.e. full-time or part-time).
If your employee’s usual wages are less than the subsidy, you must pay them their usual wages. Any difference should be used for the wages of other affected staff.
Employers should keep accurate records detailing the amount of the subsidy received and details of the employees it has been paid to. This will assist you if MSD requests to review your records later.
What if we have already applied for and been granted the wage subsidy during the period when there was a capped amount?
The Government has removed the $150,000 cap on wage subsidies that can be paid to employers affected by COVID-19.
If you have already applied for and been granted the wage subsidy for your employees before the $150k cap was removed, you don’t have to apply again as the Ministry of Social Development will top up the difference.
Will new or high growth businesses be eligible for the wage subsidy?
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 period, for example comparing March 2020 to January 2020.
If, as an employer I am receiving the wage subsidy on behalf of an employee, do I have to pay GST on the subsidy?
No, it will be treated as exempt from GST.
As an employer, do I have to pay tax on the wage subsidy I receive for an employee?
No, you don’t have to pay income tax on a wage subsidy as it’s classified as excluded income.
When the subsidy payment is passed on to employees (either in one lump sum or paid as part of the employee’s usual payment cycle) no income tax deduction can be claimed.
However, PAYE must be deducted.
Does an employee need to pay tax on a wage subsidy payment?
Yes they will as the subsidy is paid to the employer as part of their normal wages, and is subject to PAYE, ACC levies, KiwiSaver contributions and student loan repayments at the date of payment.
Are shareholder-employees eligible for the wage subsidy?
If the shareholders work for the business and are paid a wage, salary or draw an income for the work they do for the business, they can apply for the wage subsidy.
The business they work for should make the application.
If there are multiple shareholders, the business should make one application for all of its employees and shareholders who work for the business and are paid a wage, salary or draw an income for that work they do.
Can I apply for the wage subsidy if my business operates as a partnership?
If each partner that works for the business is paid a wage, salary or draws an income for the work they do, you can apply for the wage subsidy.
One partner must apply on behalf of the other partner(s) using the employer form
Are casual employees eligible to receive the wage subsidy?
Yes, casual employees are eligible.
To assess their subsidy rate, the employer should average their hours over the last year. If this average is 20 hours or more, they can apply for the full-time rate, and if it’s under 20 hours they can apply for the part-time rate.
If they have worked for less than a year, the employer should average the hours worked during their total employment period.
If they are normally paid less than $350/week, the subsidy excess can be used to assist with the wages of other affected staff members.
If an employee works several part-time jobs, each employer can add them to their application.
How do I show a 30% decline in revenue if my business has been operating for less than a year (or is a high growth firm)?
You must compare your revenue against a previous month that gives the best estimation of the revenue decline related to COVID-19.
For example, January 2020 compared with March 2020 shows a 30% loss of revenue which is attributed to COVID-19.
If an employee leaves during the 12-week period, do we have to return the wage subsidy received for that employee to WINZ?
No you don’t have to return the wage subsidy already paid when the employee voluntarily leaves their employment.
However, you must advise the Ministry of Social Development (MSD), and you cannot claim any more subsidy for that person.
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.
As a sports club with revenue coming from various areas of activities, can we claim the wage subsidy for one division in the club (such as the hospitality division) which has had a reduction in revenue?
The wage subsidy application can be applied only once by the employer. Therefore, a division(s) of an enterprise is/are not able to make separate applications for the wage subsidy.
One of the criteria for applying for the wage subsidy is that the business must be “registered and operating in New Zealand”, which is defined as a business:
- Registered with the New Zealand Companies Office, and
- Physically located in New Zealand, and
- Their employees legally work in New Zealand.
Furthermore, “revenue” is defined as total amount of money a business has earned from its normal business activities before expenses are deducted.
Based on the above definitions, a division of the enterprise is not able to make an application for the wage subsidy.
Our subscription income is all accounted for in one month when the annual subs are invoiced. If we look at the general ledger for May, we will have no subscription income and only hospitality income (which would be much less than the previous year). Should we consider the averaging of fixed income to determine whether we meet the revenue criteria to apply for the wage subsidy?
“Revenue” is defined as total amount of money a business has earned from its normal business activities before expenses are deducted. This indicates that accrual accounting needs to be adopted for the purpose of determining whether the revenue has declined by at least 30%.
We haven’t had a 30% reduction in revenue, but the purpose of the Wage Subsidy is to protect jobs. Our staff have been put on 80% pay – so could we claim it?
One of the key criteria to be eligible for the wage subsidy is that the employer/business must have experienced a minimum 30% decline in actual or predicted revenue in any four-week period between January 2020 and 9 June 2020 when compared with the same period last year. That decline must be related to COVID-19.
If this is not satisfied, the employer/business is not able to apply for the wage subsidy.
We have several part-time staff on variable hours and are paying their wages at 80% of the average monthly wage. For some staff this is much less than the $350 subsidy, but for others the subsidy is not enough to cover 80% of their salary. Overall, we have a wage subsidy surplus over the total wage bill. Do we need to look at the wage bill per staff member and refund any subsidy surplus, or should we look at the total wage bill for all staff when working out the surplus?
If your employee’s usual wages are less than the subsidy, you must pay them their usual wages. Any surplus should be used to assist with the wages of other affected staff members (i.e. staff whose share of subsidies are not enough to cover 80% of their salary).
Where there are no other employees, the excess funds should be returned to MSD.
In this case, the overall surplus after paying the wages for all staff should be returned to MSD.
It is advisable to keep track of these subsidy payments by individual employees, for the purpose of maintaining an audit trail. This will be useful in the event of an investigation or review.
Some payroll software companies have now upgraded their systems to allow employers to keep track of how the wage subsidy has been allocated to each of the employees.
Wage subsidies extension
A Wage Subsidy Extension payment was available to support all employers who are still impacted by COVID-19 after the Wage Subsidy ended. The Wage Subsidy Extension was available from 10 June 2020 until 1 September 2020.
Can I apply for the wage subsidy extension if I have already received the wage subsidy payment?
Yes, eligible employers can reapply for an employee once their current 12-week subsidy has finished.
However, if you have already given an employee notice of redundancy, you can’t apply for those employees unless the redundancy notice is withdrawn.
Before receiving a subsidy, you must show you have taken active steps to manage the implications of COVID-19 on your business, such as talking with your bank or activating your business continuity plan.
Has the weekly subsidy rate changed?
The weekly rates will be the same as the wage subsidy scheme – $585.80 per week for a full-time employee, and $350 per week for part-time employees.
The lump sum extension payment will cover 8 weeks per employee from the date you submit your application.
The Wage subsidy extension must be used to pay employees’ wages and receiving it does not change existing employment law obligations.
Am I still eligible for the wage subsidy extension?
The Wage Subsidy Extension will be open to the same types of employers currently eligible for the wage subsidy. But you must now show a decline in revenue of at least 40% for a continuous 30-day period. This period needs to be in the 40 days before you apply (but no earlier than 10 May 2020) and must be compared to the closest period last year.
A series of new tax measures will provide relief for businesses and taxpayers dealing with the effects of COVID-19.
Temporary tax loss carry-back scheme - which income tax year can I carry back my loss from, and do I have to pay my final tax payment on 7 May 2020?
Businesses expecting to make a loss in either the 2019/20 year or the 2020/21 year would be able to estimate the loss and use it to offset profits in the past year. In other words, they could carry the loss back one year.
This change means IRD could refund some or all the tax already paid for the year they were in profit. It means businesses could cash out all or some of their losses in 2019/20 or 2020/21. Without this change, firms would have to carry forward any loss to a year when they make a profit.
If you carry back your projected loss from the 2021 year and it turns out you have already paid too much tax, you don’t have to pay your tax on 7 May 2020. You would receive a tax refund on your earlier provisional tax payment.
You don’t have to rush out and re-estimate provisional tax before 7 May. You can re-estimate after this date due to the proposed law change.
However, be wary of overestimating the loss, as use of money interest will be applied to taxpayers who get their estimates of loss wrong.
Tax loss continuity rules - if I have a change in ownership of more than 51% in order to raise capital, will I lose my tax losses?
Taxpayers are now able to seek new shareholdings/investment in a similar industry/business without losing their tax losses under the continuity rules. The new rules will allow you to carry forward your losses to offset income when you return a profit.
For example, a new investor wishes to buy 75% of the shares in an existing company and bring in new capital to continue the current business of selling widgets. Prior year losses will be retained under the new rules (whereas previously they would be lost) making it a more commercially viable proposition.
When will the changes to the tax loss continuity rules apply?
They will apply to the 2020/21 and later income years.
When does the temporary $5,000 low-value asset threshold for depreciation apply from?
You can now expense business assets costing less than $5,000 which are purchased in the period 17 March 2020 to 16 March 2021. This will allow you to deduct the full cost of your business assets with a value of less than $5,000 in the year they were purchased. This is instead of having to spread the cost over the life of the asset.
However, please note that for assets purchased on or after 17 March 2021, this threshold value will be permanently set at $1,000.
What should I consider when purchasing low-value business assets under $5,000?
For the instant depreciation deductions, consider whether an order costing more than $5,000 can be said to be comprised of a series of assets each with a cost of less than $5,000. However, if an asset forms part of another item that is depreciable, a deduction cannot be applied.
Also consider if several assets valued under $5,000 need to be purchased from the same supplier at the same time – the $5,000 threshold will apply to the total of all assets purchased at that time.
When will the depreciation on non-residential buildings apply from and what is the new rate?
Commercial and industrial buildings can be depreciated as from 1 April 2020. Previously, tax depreciation on all buildings was at 0% because of 2011 tax changes.
Non-residential buildings will be depreciated at a rate of 2% diminishing value (or 1.5% straight line).
Seek clarification if you are unsure if a building is classed as residential – there may be some buildings that appear to be residential but are not.
Can I claim depreciation deductions on my Airbnb property?
Airbnb properties with less than four individual units or are part of a residential home, are NOT non-residential and therefore cannot be depreciated.
What is the new provisional tax threshold?
For the 2021 income year and later income years, the provisional tax threshold increases from $2,500 to $5,000. This is a permanent change.
If your 2020 income tax return RIT is under $5,000 it will not generate a provisional tax liability for 2021.
Will there be penalties for the late filing of 2019 tax returns?
There will be no late filing penalties imposed for returns filed late due to the impact of COVID-19.
Late tax return filings will have the effect of extending the time bar by one year (to 31 March 2025) if filed after 31 May 2020. If it is filed prior to 31 May 2020, the time bar will remain at 31 March 2024.
An extension of time has been granted in relation to advising IRD of 2019 subvention payments to 31
May 2020 (previous deadline 31 March 2020) and there will be no extension to the time bar.
Agent managers will not be taking action in relation to unmet 2019 filing percentages.
What if my stocktake is late?
Stocktakes can be taken any time up until 31 May 2020 and must be adjusted for post balance date sales and purchases. These can then be accepted for use in the 2020 income tax return.
There is currently no contemplation of what will occur if lockdown is extended past 31 May 2020.
Leases and mortgages
Temporary law changes will support tenants and landlords impacted by COVID-19 and make it easier to retain lease arrangements and get back to business after the epidemic.
How long do commercial landlords have to give before cancelling a lease?
A commercial landlord will be required to give a tenant at least 30 working days’ notice before cancelling a lease because of overdue rent. This will give more time for commercial tenants to catch up with rent payments before the tenant can be evicted. If the tenant is not able to catch up, the tenant will have more time to approach the landlord about temporary changes to the rent or lease agreement to help the tenant get by until it can resume operating as usual.
What are the new notice periods for lenders for taking possession or selling mortgaged property and mortgaged goods?
If commercial tenants are having difficulty paying rent, that may make it difficult for landlords to keep up with their mortgage payments.
The Government is extending the notice period for lenders from 20 to 40 working days before they use their powers to take possession of, or sell, mortgaged property, and from 10 to 20 working days for mortgaged goods.
This will apply to commercial mortgages and home loans, and regardless of whether the mortgaged property is tenanted. However, residential borrowers are likely to use the already announced mortgage payment holiday.
Business finance support
Financial support is available for businesses and homeowners affected by the economic impacts of COVID-19 through the Business Finance Guarantee Scheme or Mortgage Holiday Scheme.
Am I eligible for the Business Finance Guarantee Scheme and how much can I apply for?
To be eligible your business must be New Zealand-based and with an annual turnover between $250,000 and $80 million.
The limit will be a maximum of $500,000 for three years. However, the maximum amount your bank is prepared to lend to you will be determined by your bank.
If you or your business was on your bank’s credit watch list at the outset of the COVID-19 crisis, you will not be eligible for a loan under the scheme
What can the business finance guarantee loan be used for?
The loan can be used for operating expenses while the business deals with the disruption of COVID-19.
Five percent of the loan can be used for capital expenditure.
The loan can only be used to refinance existing debt if it is a loan advanced on or after 16 March 2020 that meets other criteria.
The loan can’t be used to pay dividends or for on-lending outside borrower’s guaranteeing group.
What is the deadline for applying for the scheme?
Loans will be available under the scheme until 30 June 2021.
Under the mortgage holiday scheme, if I defer paying my mortgage for 6 months will I still have to make interest payments?
No, under the scheme you will not need to make interest and principal payments on your loan for up to 6 months.
It is important to know that interest on these loans will still increase, and deferred interest will be added to the principal amount of the loan. Therefore, a borrower’s mortgage will be bigger at the end of the mortgage holiday than they were when it began because interest will still accrue.
How much extra cost does this add to my total loan?
A six-month repayment holiday would add about $15,000 to the cost of a loan for someone with a $500,000 mortgage at 4%, or about an extra $72 a month once payments began again.
Changes to Companies Act
Temporary changes have been made to the Companies Act to help businesses facing insolvency to remain viable.
How will a ‘safe harbour’ for director duties help my business?
From 3 April 2020, directors who continue to trade over the next 6 months will have a safe harbour from potential claims under sections 135 (“Reckless Trading”) and 136 (“Duty in Relation to Obligations”).
This will provide directors with greater certainty about compliance with the two insolvency-related directors’ duties when considering whether or not a company should take on new obligations or keep trading. It will also help otherwise profitable and viable businesses from being voluntarily liquidated prematurely in the coming weeks or months due to directors being personally liable for breaches of two duties under the Companies Act.
Directors’ decisions will not result in a breach of duties if:
- In the good faith opinion of the directors, the company is facing or is likely to face significant liquidity problems in the next six months as a result of the impact of COVID-19 on them or their creditors
- The business was able to pay its debts that were due on 31 December 2019, and
- The directors consider in good faith that it is more likely than not the company will be able to pay its debts as they fall due within 18 months
Business debt hibernation scheme – what does the mean for businesses?
The scheme allows businesses impacted by COVID-19 to place their existing business debts into hibernation for 6 months. Businesses will be able to continue to trade under the control of the directors, subject to any restrictions agreed with creditors.
- It encourages directors to talk to their creditors with a view to putting together a simple proposal for putting the business into hibernation.
- It allows for the directors to retain control of the company, rather than passing control to an insolvency practitioner.
- It provides certainty to new creditors that they won’t have to repay any money they receive, to encourage businesses to continue trading with businesses in Business Debt Hibernation.
What businesses will be eligible for the business debt hibernation scheme?
The scheme will be available to all forms of entity with legal personality (not just companies) and entities that do not have legal personality (i.e. trusts and partnerships).
It will not be available to sole traders, nor will it be available to licensed insurers, registered banks, or non-bank deposit takers.
What process do I need to follow to get my creditors to agree with freezing debt repayments and what happens if my creditors reject the proposal?
Key features of the proposal are that:
- directors will have to meet a threshold before being able to access the Business Debt Hibernation regime and putting a proposal to their creditors
- creditors will have a month from the date of notification of the proposal to vote on it
- the proposal will be binding if 50% of the creditors by both number and value vote in favour
- there will be a 1-month moratorium on the enforcement of debts from the date the proposal is notified, and a further 6-month moratorium if the proposal is passed.
If the creditors reject the proposal, the directors still have the range of existing options available including trading on, entering voluntary administration and appointing a liquidator.
Leave Support Scheme
The COVID-19 Leave Support Scheme (previously the COVID-19 Essential Workers Leave Support) is available for all employers, including sole traders, to pay their employees who can’t work.
Who is eligible to get the leave support payment?
This payment is intended for employees who can’t come into work and can’t work from home because:
- The Ministry of Health guidelines recommend they stay at home while public health restrictions are in place
- They have come into contact with someone who has COVID-19 and must self-isolate for 14 days (as required by Ministry of Health guidelines)
- They have tested positive for COVID-19 and are required to remain off work until they’ve been cleared by a health professional to be released from self-isolation, or
- They have household members who are at higher risk if they get COVID-19 and the Ministry of Health recommends the employee also remains at home to reduce the risk to them.
The employee must be legally working in New Zealand.
Your business must also:
- Be a registered business, sole trader, self-employed person, registered charity, incorporated society, non-government organisation, or post settlement governance entity in New Zealand, and
- Have either:
- Experienced a minimum 30 per cent decline in actual or predicted revenue over the period of a month when compared to the same month last year due to the COVID-19 outbreak, or
- Had your ability to support your employee due to the COVID-19 public health restrictions negatively impacted
- Not be receiving the COVID-19 Wage Subsidy or any other government funding to cover any of the situations in this leave support scheme for the employee named in your application.
State sector organisations are not eligible to receive the COVID-19 Leave Support Scheme. This includes government agencies, Crown entities, schools and tertiary education institutions.