On 17 March the Government released its fiscal and economic response to the COVID-19 pandemic. It was originally costed at $12.1b which is equivalent to around 4% of New Zealand’s annual GDP. Changes have been made to the package over the last few days as New Zealand moved to alert level 4 at 11:59pm on 25 March 2020. The package is now expected to cost approximately $17-18b. The bulk of the package comprises spending of:
- $8-10b to support businesses, the self-employed and jobs;
- $2.8b in assistance to those receiving benefits, via a $25 per week increase in core benefits from 1 April and a doubling of the winter energy payment;
- $500 million in additional health funding, to improve the COVID-19 response;
- $600 million to support the aviation sector.
The more recent extension to the package includes the following:
- The Government, retail banks and the Reserve Bank have announced a six-monthly principal and interest payment holiday for mortgage holders and SME customers whose incomes have been affected by COVID-19.
- The Government and the banks will implement a $6.25b Business Finance Guarantee Scheme for small and medium-sized businesses. This is to provide short-term credit to cushion the financial distress of SMEs. The scheme will include a limit of $500,000 per loan and will apply to firms with a turnover of between $250,000 and $80 million per annum. The loans will be for a maximum of three years and expected to be provided by the banks at competitive rates. The Government will carry 80% of the credit risk, with the other 20% to be carried by the banks.
- The Government has agreed to freeze all rent increases and to look to extend no-cause terminations.
Wage subsidy scheme
For businesses and the self-employed, there is a wage subsidy scheme (the accompanying leave payment scheme was discontinued with effect from 3:00pm 27 March 2020, although applications submitted before then will still be processed by Work and Income New Zealand). A new leave scheme for essential workers was announced on 2 April 2020 – further details are provided below.
More detail of these payments can be found at the links below. We have summarised the key parts of each policy. However, as the policy has been developed and evolved quickly, there remain unanswered questions.
Please check our Q&A page which we will keep updating as more information becomes available on the wage subsidy and other relief available to businesses.
Wage subsidy eligibility
On 17 August 2020, the Government announced a further two week extension to the wage subsidy scheme (referred to as the Resurgence Wage Subsidy) for the duration of the period that Auckland is at COVID-19 Alert Level 3. Applications for the extended scheme are open from 21 August 2020. It is available nationally for business that meet the criteria, including having, or expecting to have, a revenue drop of at least 40% because of COVID-19 for a continuous 14 day period between 12 August and 10 September compared to a similar period last year. Further information can be found here.
The wage subsidy is available to employers, contractors, sole traders, the self-employed, registered charities, incorporated societies, non-governmental organisations and post-settlement governance entities. The businesses must be registered and operating in New Zealand.
The wage subsidy is aimed at allowing employers to continue to employ staff. The subsidy is $585 or $350 per employee for 12 weeks depending on whether the employee works for more or less than 20 hours per week.
There is no cap on the subsidy (originally there was a cap of $150,000 per organisation.)
There are some key matters to accessing the scheme:
- A 40% decline in actual or predicted revenue in any month when compared to the same month last year and the revenue loss is attributable to the COVID-19 pandemic.
- The business needs to have tried active means (for example, the bank, making an insurance claim) to manage the effects of the decline;
- Committing, on a “best endeavours” basis, to paying the subsidised employees 80% of their normal income for the period of the subsidy as specified in their employment agreement.
- Committing to pay the full amount of the subsidy to employees and retaining the employees for the period the subsidy is received.
New businesses (e.g. that are less than a year old) and high growth firms (e.g. firms that have had significant increase in revenue) are also eligible. They need to demonstrate the 40% revenue loss over a relevant period, for example, March 2020 compared to January 2020, rather than to last year’s equivalent month.
The application is made online.
COVID-19 Leave Support Scheme
On 17 August 2020 the Government announced some modifications to simplify the Leave Support Scheme. Specifically, the revenue test does not meet to be met for applications made from 21 August 2020. The new scheme assists businesses to pay staff who need to take leave to comply with public health guidance e.g. to self-isolate.
The same rates as the Wage Subsidy Scheme of $585.80 per week fulltime and $350.00 per week for part time workers will apply. Payments will be four-weekly with the option for essential businesses to re-apply for those same workers after four weeks or make further applications for additional workers who are eligible at any time, while the scheme remains open.
Employers accessing the scheme are expected to pay employees at either:
- Their usual weekly income before COVID-19, if this is less than the relevant rate provided under the scheme; or
- A minimum of the full leave scheme rate, if their usual income before COVID‑19 exceeds that rate, and in that case also make best endeavours to pay at least 80 percent of the their usual income before COVID-19.
According to the announcement, employees who are on other forms of paid leave are expected to be paid at their usual full rates of pay.
For further information on the scheme, click here.
Tax changes and tax payments
The Government also announced tax changes. Included in the Government’s response are a number of tax measures:
- The reintroduction, from the 2020-21 income year, of a 2% DV depreciation deduction for commercial and industrial buildings. This includes hotels and motels.
- Bringing forward R&D refundability rules to the 2019-20 income year.
- A temporary increase in the threshold for expensing low-value assets from $500 to $5,000 during the 2020-21 income year. The threshold will be $1,000 from the 2021-22 income year.
- The threshold for paying provisional tax will increase from $2,500 to $5,000 of residual income tax, from the 2020-21 income year.
- Inland Revenue will be given the power to write off interest on late payments for those adversely, financially, impacted by COVID-19 for tax payments due after 14 February 2020.
- Changes to the calculation of the in-work tax credit to remove the hours worked test.
- Inland Revenue will have greater information sharing powers to facilitate a whole of government response to COVID-19.
These are covered in our Taxmails on the Government's COVID-19 fiscal and economic response package and on COVID-19 Tax Act and late payment and were included in the COVID-19 Response (Taxation and Social Assistance Urgent Measures) Act which was enacted on 25 March 2020.
The Act also allows refunds of research and development tax credits one year earlier than planned (for the 2019-20 income year rather than for the 2020-21 income year. This had not been previously announced.
If you have difficulties with tax payments, Inland Revenue can accept instalment arrangements through MyIR or through agreement with their debt recovery team. Inland Revenue announced its intention to waive penalties and interest for late payments in a media release on 25 March 2020. There are no apparent requirements but further detail and explanation may follow.
The extension of the package is welcome as assisting to improve business liquidity in the short to medium term.
The Government response is evolving as public health measures are taken and the effects of the packages are assessed. The removal of the $150,000 limit for the wage subsidy is an example.
There will also be further specific initiatives for specific sectors and across the broader economy. For example:
- Detail of the aviation sector support were announced 24 March 2020; and
- A $56M package of support for Māori communities and businesses to respond COVID-19. This includes targeted health funding and community support but also funding to enable a needs assessment for Māori businesses leading to a Māori business response plan.
If your business includes activity outside New Zealand or you have an interest in what the rest of the world is doing, we have summarised country tax responses to COVID-19 in our COVID-19 Global Tax Developments Summary PDF.