New ZealandTax and financial measures associated with COVID-19
In response to the Coronavirus crisis, the New Zealand Government has outlined new relief measures in an attempt to assist businesses and New Zealanders during the COVID-19 pandemic. We have prepared a summary of the measures outlined in the plan to date and will continue to update you on any further relief measures as and when they become available.
The wage subsidy is available to all businesses adversely affected by COVID-19 including self-employed, contractors, sole traders, registered charities, incorporated societies and post-settlement governance entities.
Businesses will be eligible for the subsidy where they have experienced a 30% decline in actual or predicted revenue related to COVID-19. This means your business has experienced a minimum 30% decline in actual or predicted revenue over the period of a month, when compared with the same month last year, and that decline is related to COVID-19. For example, February 2020 compared with February 2019. If your business has been operating for less than a year (or is a high growth firm) then 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.
Before receiving a subsidy, you must take active steps to manage the implications of COVID-19 on your business. This might include talking with your bank, making an insurance claim, or activating your business continuity plan.
The COVID-19 wage subsidy is paid at a flat rate of NZ$585.80 per week for full-time employees (20 hours or more per week) or NZ$350 per week for part-time employees (less than 20 hours per week). The subsidy will be paid as a lump sum and covers 12 weeks per employee. 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, ie full time or part time.
If your employee's usual wages are less than the subsidy, pay them their usual wages. Any difference should be used for the wages of other affected staff — the wage subsidy is designed to keep your employees connected to you.
For tax purposes the wage subsidy is considered excluded income and is GST exempt. When passed on as wages, businesses don’t get a deduction for income tax purposes. Subsidy payments to employees are wages and subject to standard deductions like PAYE, ACC levies, KiwiSaver contributions and student loan repayments.
Due to the broad nature of the wage subsidy there are a number of scenarios that could apply. We advise particular care is taken when working through how the wage subsidy may apply to you.
If you are an essential business you can also apply for the wage subsidy scheme if your business has had a 30% drop in revenue. Essential businesses can also access leave support for essential workers, to pay employees who can't work because Ministry of Health guidelines recommend they stay at home, and can’t work at home. In addition, you can apply for both subsidies, but you can’t receive both for the same employee at the same time.
Business Finance Support
The Government has launched a business finance guarantee scheme for small and medium-sized businesses, to protect jobs and support the economy. Under the scheme, businesses with annual revenue between NZ$250,000 and NZ$80 million can apply to their banks for loans up to NZ$500,000, for up to three years. Government is guaranteeing 80% of the risk, while the banks are covering the remaining 20%. A normal lending process will be followed by the banks, which will make the lending decisions. We suggest contacting your bank and/or referring to websites for further details.
It is important to note that the intention of these loans is to finance businesses’ current and upcoming operating cash flow needs, including things like rent and staff expenses. A supported loan will not be available to fund capital assets/projects, dividends to be distributed outside the Borrower’s guaranteeing group, re-financing existing debt advanced pre March 16th, on-lending outside the Borrower’s guaranteeing group or any excluded activities. A list of excluded activities can be found online per business.govt.nz/ covid-19/business-finance-support-and-mortgage-holidays.
The mortgage holiday package includes a six-month principal and interest payment holiday for mortgage holders and small to medium sized businesses whose incomes have been affected by the economic disruption from COVID-19. As any interest accrued during the deferral period will be added to your loan it is very important to consider the true cost of taking a mortgage holiday.
COVID-19 Inland Revenue Policy Initiatives
Inland Revenue has or is in the process of implementing a wide range and frequency of policy and related changes.
Significant Announcements up to and including 15 April 2020 include:
- Depreciation and Low Value Assets
From the 2020-2021 income year onwards we're changing depreciation for commercial and industrial building. Previously, tax depreciation on all buildings was at 0% because of 2011 tax changes. If your business is eligible you'll be able to claim depreciation deductions in your tax return for commercial and industrial buildings. Residential buildings are not part of these depreciation changes.
From 17 March 2020, the low-value asset threshold for depreciation has increased from NZ$500 to NZ$5,000. This will allow you to deduct the full cost of your business assets with a value of less than NZ$5,000 in the year they purchased them instead of having to spread the cost over the life of the asset. It is important to note that threshold is only available to 16 March 2021 and for assets purchased on or after 17 March 2021, this threshold will be permanently increased from NZ$500 to NZ$1,000.
- Provisional Tax Threshold
The New Zealand Government has recently passed legislation to increase the provisional tax threshold from NZ$2,500 to NZ$5,000. This means any current provisional taxpayers with provisional tax payments of less than NZ$5,000 will have until 7 February following the year they file to pay their tax bill. This is a permanent change that will take effect from the 2020-2021 income year. For most taxpayers, this will mean 1 April 2020.
It is important to note that if your circumstances have changed due to COVID-19 you can still make an estimate or re-estimate of provisional tax.
- Remission of Penalties and Interest due to Late Payment
In certain cases, taxpayers who have been significantly affected by COVID-19 may be eligible for relief of late payment penalties and interest incurred due to late payment. It is important to note that relief is only available once the core tax has been paid in full. To be eligible for remittance of penalties and UOMI, the taxpayer must meet the following criteria:
- The taxpayer has tax that is due on or after 14 February 2020
- The taxpayer’s ability to pay by the due date, either physically or financially, has been significantly affected by COVID-19
- The taxpayer will be expected to contact the Commissioner as soon as practicable to request relief and will also be required to pay the outstanding tax as soon as practicable
It is the Commissioner’s view that the taxpayer has been significantly affected by COVID-19 financially where the customer’s income or revenue has reduced as a consequence of COVID-19 and that as a result of that reduction in income or revenue is unable to pay their taxes in full and on time.
If relief is sought, you may be required to provide, if asked, at least three months banks statements and credit card statement; any management accounting information; a list of aged creditors and debtors. It is not their intention to ask for that information in every case, but the information should be available if they do ask for it.
- Greater Flexibility for Business Taxpayers in respect of Statutory Tax Deadlines
Inland Revenue will be given greater flexibility to modify timeframes or procedural requirements for taxpayers who are impacted by COVID-19. This could include, for example, extending deadlines for filing tax returns and paying provisional and terminal tax. At this stage, the power will be time-limited for a period of 18 months and will apply to businesses affected by COVID-19.
- Changes to the Tax Loss Continuity Rules
Inland Revenue has recognised that in this extraordinary time, businesses may need to raise additional capital to remain afloat. The in-principle announcement of changes to the tax loss continuity rules and introducing a “same or similar business” test gives taxpayers raising capital a level of certainty to undertake these transactions, while also giving officials time to work through the detailed design of rules that can be included in a bill in the second half of 2020. The new rules will apply for the 2020-21 and later income years.
- A Tax Loss Carry-Back Scheme
A loss carry-back mechanism enables a firm to offset a loss in a particular tax year against a profit in a previous year, and receive a refund of the tax paid in the previous profitable year. The proposed mechanism will provide cash to firms that are, or anticipate, being in loss. A temporary mechanism will be included in a bill introduced the week of the 27th of April. Between now and then Inland Revenue will be undertaking targeted consultation with tax advisors to make the law and administrative guidance as clear as possible.
If you find that you are experiencing difficulties due to the impact of COVID-19 or would like to discuss any of the above points, please do not hesitate to contact us. We are committed to working together to help you through this.