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WAGE SUBSIDY EXTENSION
Applications for the wage subsidy extension are now open. Use this tool to find out if you are eligible and how to apply.
It was announced in the Budget 2020 that the Wage Subsidy scheme will be extended. The extension will be available from 10 June 2020 until 1 September 2020:
Wage subsidies are available for all employers that are significantly impacted by Covid-19 and are struggling to retain employees as a result. The subsidy applies to all employers, contractors, sole traders, self-employed people, registered charities and incorporated societies.
MBIE has an online wage subsidy tool to help you figure out whether you are eligible, if you haven’t already applied: https://www.business.govt.nz/covid-19/wage-subsidy-eligibilty-tool/
The COVID-19 Wage Subsidy will be paid at a flat rate of:
The subsidy is paid as a lump sum and covers 12 weeks per employee. This subsidy is for wages only. It is to help you keep your staff employed while you consider changes that may be needed while the disruption continues, and to ensure the future viability of your business.
When you apply, you will need to have handy:
You do not need to submit evidence of the decline in revenue with your application. But you should ensure that you have this available if you are asked for it at a later date. If we can help you with your application, please contact us.
In applying for the wage subsidy, you as the employer will need to declare that you will use your best endeavours to continue to employ the affected employees at a minimum of 80% of their income for the duration of the subsidy period. (This is the equivalent of keeping people working 4 out of 5 days of the week.) You must also have taken active steps to mitigate the impact of COVID-19 and sign a declaration form to that effect. Please read carefully the declaration form.
If you are receiving the wage subsidy, you must try your best 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 (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.
The subsidy is paid in a lump sum and covers 12 weeks per named employee in your application. You should pass on this subsidy to your staff in accordance with their usual pay cycles, unless you both agree to a different schedule.
If an employee resigns during the 12 week period, you must notify Work and Income. You will not be entitled to further subsidies for that employee.
The names of businesses who have been paid the wage subsidy will be made public. The Finance Minister clarified that nothing under the wage subsidy scheme overrides employers’ legal obligations, especially with respect to leave entitlements.
Wage subsidy and tax
The wage subsidy is not subject to GST. It is classified as excluded income. You will not be entitled to an income tax deduction for wages paid out of the wage subsidy. Therefore from an income tax perspective, you will need to be able to clearly identify the amount of remuneration paid to employees that has been generated from the wage subsidy. Keep records and bank statements.
The wage subsidy is paid to your employee as part of their normal wages. This means it is subject to the usual PAYE, Student Loan, child support and KiwiSaver deductions.
Understanding your financial situation is important in times of uncertainty. It can also help you have better conversations with your bank or advisor. There is a new tool on the MBIE website to help you forecast your cash flow.
[Update - 5 May 2020, 1pm]
Insolvency relief for businesses affected by COVID-19
Support is on the way for businesses facing insolvency due to COVID-19, with the Government introducing a package of measures in Parliament today to further boost New Zealand’s economic recovery.
The changes to insolvency and company law include a range of measures to support business through the pandemic. The Bill aims to help businesses facing insolvency to remain viable by:
These changes sit alongside the Government’s other support for the business sector, including the wage subsidy scheme, the Small Business Cashflow Loan Scheme, the Business Finance Guarantee scheme, and support through the tax system.
Of relevance to the retail sector, the Bill will also include:
[Update - 1 May 2020, 1pm] The COVID-19 Response (Taxation and Other Regulatory Urgent Measures) Bill was passed under urgency on Thursday 30 April and comes into force as soon as it receives royal assent. The legislation includes a number of provisions of interest to small businesses.
Small business cashflow loan scheme
Information about how to apply, eligibility, and terms is online now.
The Government will provide interest free loans for a year to small businesses impacted by the COVID-19 economic shock to support their immediate cashflow needs and meet fixed costs. The Small Business Cashflow Loan Scheme will provide up to $100,000 to firms employing 50 or fewer full time equivalent employees. The scheme will provide $10,000 to every firm and in addition $1800 per equivalent full time employee. Loans will be interest free if they are paid back within a year. The interest rate will be 3% for a maximum term of five years. Repayments of principal and interest are not required for the first two years.
The eligibility criteria are the same as for the Wage Subsidy Scheme. Businesses will also have to declare that they are a viable business, they will use the money for core business operating costs, and enter into a legally binding loan contract.
The scheme will be administered by IRD who will be taking applications from the 12th of May, and will pay out very shortly thereafter. The application date has been extended through to the end of 2020.
The Government is also making changes to the criteria for the previously announced Business Finance Guarantee Scheme, including removing the requirement for a General Security Agreement. Further changes to the scheme are also being considered to ensure it plays a useful part in providing support to businesses.
Temporary loss carry-back regime
The new legislation introduces a tax loss carry-back measure. This will have the effect of allowing businesses that anticipate being in loss in either the 2019–20 or 2020–21 tax year to carry some or all of that loss to the preceding year where profits were earned.
Loss carry-forwards and carry-backs are intended to prevent systematic over-taxation over time. If taxpayers always pay tax when they earn income, but never get relief when they have a loss, they will pay more than the statutory rate of tax over time. Loss carry-backs are one way to address this.
This will be a temporary measure to provide fast cash flow relief for businesses in loss during the period affected by COVID-19. The measure enables tax refunds with respect to profit years to be paid before the loss year has finished.
Almost all types of taxpayers—companies, trusts, and individuals—will be eligible to carry back losses. Most individuals who pay tax via PAYE do not have losses and so will be unaffected by this measure but those that operate businesses through partnerships, limited partnerships, and look-through companies will be able to benefit.
The Commissioner of Inland Revenue will have a new temporary discretionary power to respond swiftly to practical concerns in the current environment and where appropriate modify due dates, timeframes, or procedural requirements for taxpayers who are impacted by COVID-19. This is intended to be applied for requirements that are specified under the Inland Revenue Acts, or provisions of the Unclaimed Money Act 1971. This provision would allow the Commissioner to, at her discretion, extend dates or time periods and vary procedural or administrative requirements which must be met.
This discretionary power is an additional and more timely method in a suite of tools which the Commissioner may use to respond to practical concerns around compliance with tax requirements due to COVID-19. Existing tools include the ability to remit use of money interest and the Commissioner’s discretion under the care and management provision.
You can find more information here.
The type of relief available
New debt due to Covid-19:
Pre-existing debt prior to Covid-19
If you are already in an arrangement with IRD but consider you might not be able to continue with the current terms, due to being significantly affected by Covid-19, you can ask to renegotiate the instalment arrangement. Any of the above options may be appropriate and each case will be considered on its own facts. You must contact the IRD as soon as you believe you will have difficulty in meeting your current arrangement.
If you do not already have your debt under an arrangement, you should contact the IRD as soon as possible to discuss what options may best suit your particular circumstances.
Filing of returns
The IRD accepts that some taxpayers will have difficulty paying all their taxes in full and on time. However, it is important that you continue to file your returns on time. The information in those returns allows the IRD to have a more complete picture of your financial position when considering the various options for relief.