Important updates to the Government’s COVID-19 Financial Support Package
As the country adjusts to Alert Level 4, the government has made further announcements regarding its COVID-19 financial support package. These include important changes to the wage subsidy scheme announced on 17 March.
Here, we set out the key changes which may affect your business. Further information on the government’s COVID-19 Support Package can be found on the Work and Income New Zealand website.
The situation is changing daily. We encourage you to keep in contact with us directly to discuss how the financial support measures may assist you and your business. We will be available whatever hours are necessary to ensure you are supported in the creation of strategies and implementation of solutions during this time.
Changes to wage subsidy scheme
The key changes to the wage subsidy scheme are as follows:
The $150,000 cap has been removed
The wage subsidy scheme applies to all New Zealand employers, contractors, sole-traders, self-employed people, registered charities and incorporated societies. Removing the $150,000 cap on payments means that the scheme can now be accessed by larger New Zealand businesses.
The amount of the payment remains the same, that is, a flat rate of:
$585.80 per full-time employee per week (working 20 hours or more per week); or
$350 per part-time employee per week (less than 20 hours per week)
As before, the payment will be made as a lump sum for a period covering 12 weeks, which amounts to $7,029.60 for all full-time employees and $4,200 for all part time employees. However, this is no longer capped at $150,000, meaning that employers can now apply for a wage subsidy for all of their staff. The IRD has produced guidance on the tax treatment of these payments which can be found here.
The Finance Minister has indicated that the 12-week period will likely be reviewed as the Alert Level 4 status evolves.
Businesses can only apply for the wage subsidy once. If you have already applied for and been granted the subsidy and MSD has capped the amount paid, MSD will automatically top-up the difference.
Businesses that have already applied for the wage subsidy for staff and claimed only enough to meet the cap will be able to reapply once they have used the subsidy.
Clarification of the criteria for showing a 30% decline in revenue:
Under the Scheme as originally announced, in order to be eligible for the wage subsidy scheme, businesses must have suffered (or be projected to suffer) a 30% decline in revenue for any month between January 2020 and June 2020 compared to the same month last year.
“New businesses” and “high growth firms” are also eligible under scheme:
- New businesses (i.e. businesses less than a year old) must compare their revenue against a previous month that gives the best estimation of the revenue decline related to COVID-19.
- High growth businesses (i.e. firms that have had significant increase in revenue) will need to demonstrate the revenue loss assessment against a similar time period.
For example, a 30% loss of income, attributable to COVID-19, in March 2020 compared to January 2020.
Self-employed people with variable monthly incomes are eligible if they can demonstrate the revenue loss assessment against the previous year’s monthly average (for example, 30% loss of income attributable to COVID-19 comparing March 2020 to the average monthly income in the period March 2019 to March 2020).
Changes to wage subsidy obligations
Employers receiving the wage subsidy must now use best endeavours to pay the employees named in the application at least 80% of their usual wages or salary. If that isn’t possible, employers need to pay at least the full amount of the subsidy to the employee.
The Finance Minister has also clarified what happens when an employee’s wages or salary are less than the subsidy amount. This is particularly an issue for part-time employees who may earn less than $350 per week. In these situations, employers must pay the employee their usual wages or salary. Current MSD guidance states that any difference should be used for the wages of other affected staff.
Employers must also retain the employees named in their application for the period of the wage subsidy.
Businesses will still need to meet the other criteria for the wage subsidy scheme. These are:
- your business must be registered and operating in New Zealand. You will need a New Zealand Business Number (NZBN) to make the application (further information on this is contained in our earlier article or on the Work and Income New Zealand website);
- your employees must be legally working in New Zealand;
- you must have taken active steps to mitigate the impact of COVID-19 (this could include, for example, engaging with your bank, activating your business continuity plan, drawing on your cash reserves as appropriate, and making an insurance claim).
When applying for the wage subsidy, employers will be required to complete a declaration form to confirm (among other things) that they meet the eligibility criteria for the scheme and will comply with their obligations to use the subsidy to retain and pay employees in accordance with the scheme rules. Details of the current required declarations can be found here. We are available to assist you through the application process to ensure you fully understand your obligations under the wage subsidy scheme.
COVID-19 leave entitlements
From 3pm on 27 March 2020, the COVID-19 leave payment is no longer available to employers. This has been folded into the wage subsidy scheme to prevent “double dipping”. This does not affect applications already submitted.
Other support measures:
This is an ever-changing situation. We recommend that you keep in touch with us to ensure that you fully understand the support that may be available to your business. New measures are being announced almost daily, including:
- A $6.25 billion Business Finance Guarantee Scheme for small and medium-sized businesses. This Scheme will provide short-term credit for solvent small and medium-sized firms affected by COVID-19. 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 are expected to be provided by the banks at competitive, transparent rates.
- A six-month principle and interest payment holiday for mortgage holders and small SME customers whose incomes have been affected by COVID-19.
We recommend you speak with your bank for further information on the mortgage payment holiday and Business Finance Guarantee Scheme. It will be crucial for businesses affected by COVID-19 to maintain an open dialogue with their banks as the situation continues to evolve. We are available to assist you through this process.
Parliament has also now passed law to implement the tax measures announced as part of the government’s COVID-19 financial support package. These include (among other things):
- Reinstating depreciation deductions for non-residential buildings.
- Increasing the provisional tax threshold from $2,500 to $5,000.
- Temporarily increasing the threshold of the value of assets which can be deducted in the year the asset was purchased. The threshold will increase from $500 to $5,000 for assets purchased in the 12 months from 17 March 2020 (reducing to $1,000 from 17 March 2021).
- Bringing the application date of broader refundability for the R&D tax credit forward by one year, to the 2019–20 income year, to help businesses retain their R&D capability during the COVID-19 outbreak.
- Allowing Inland Revenue to cancel interest on a late tax payment if the taxpayer’s ability to make a payment due on or after 14 February 2020 was significantly adversely affected by the COVID-19 outbreak.
- Allowing more access to the in-work tax credit.
Changes have also been made to the Residential Tenancies Act 1986 to implement a freeze on rent increases and to restrict termination of residential tenancies.
We can expect to see more announcements in the days and weeks ahead. We will continue to monitor these developments and will provide updates as more information comes to hand.
Disclaimer: The content of this article is general in nature and not intended as a substitute for specific professional advice on any matter and should not be relied upon for that purpose. While we make every effort to ensure the accuracy of the information contained in this article, this is a rapidly changing environment and the information will be subject to change.