We have issued a number of newsletters – and thought that we would include almost everything we know about covid-19 and government support for your business in one tidy spot.
The Government has announced a range of changes to support business.
Wage Subsidy – by far the most in demand request at the moment is for the wage subsidy. This is available to employers, partnerships, and the self-employed. There is no limit as to how much will be paid out, and we have assisted some firms achieve some really significant sums. The form is easy to complete. Please note:
- A wage subsidy is available to sole traders, self-employed, and firms. To be eligible, revenue needs to be down by 30% on the same month in the previous year. For full-time people working 20 hours or more the support is $585.80 per week, and for those working less than 20 is $350 per week. Employers need to provide some undertakings around employment commitment, and must take active steps to mitigate the impact of COVID-19.
- When a company applies for the wage subsidy, it should also include the names of the shareholders who normally receive a shareholder salary. A partnership should apply for its active partners.
- There are occasions where employees have been excluded from the wage subsidy application. While the form makes clear that you can only apply once, there is a stated exception for businesses that had applied while a cap existed, and now need to apply for the remaining staff. What isn’t stated is that a further application can be made where other employees have been accidentally omitted. We have been able to achieve this outcome through trial, without error.
- If your business has received a wage subsidy, there is an obligation to pay the employees who are covered by the wage subsidy 80% of their normal pay for the next 12 weeks. This means that you will likely need to top-up the payment to the employees.
- If you have no work for your employees and cannot pay them 80%, you must as a minimum pass on the wage subsidy or their average pay.
Essential Worker Leave Support – this is available for essential businesses to pay their employees who can’t work.
- Essential workers have responsibilities to self-isolate where certain conditions exist. The COVID-19 Essential Workers Leave Support scheme supports those who can’t come into work because Ministry of Health guidelines recommend that they stay at home, and they cannot work from home. The employer will apply on behalf of the employee for the payment, and are required to pass this on in full to the employee. The payment does not affect any paid leave entitlements. The payment is $585.80 per week, for two weeks.
We started the year with very few tax changes on the radar. Some that were have been brought forward and included in the relief package, while other changes not envisaged are now becoming reality. There will probably be more, particularly in the area of increasing the tax base to pay for the adjustments currently being implemented. Some of the key changes announced to date include:
Low Cost Assets – all asset purchases under $5,000 from 17 March 2020 to 16 March 2021 can be immediately expensed and deducted for tax purposes. The threshold drops to $1,000 from 17 March 2021. That is better than the $500 threshold that applied until now.
Low Tax Loss Carry Back Scheme – In many jurisdictions around the world, there is an ability for the taxpayer to offset current year losses against previous year profits, thus resulting in a refund of tax that had previously been paid. New Zealand historically has not allowed losses to be offset against previous the year’s profits. A temporary scheme has been announced, effective immediately, with plans for a permanent scheme to be introduced.
- The proposed scheme, which is designed to be effective from 1 April 2020, will provide for tax losses to be offset against the profits of the 2020 income tax year.
- There are significant ramifications for taxpayers that are due to pay provisional tax on May 7, 2020. If a taxpayer had a successful 2020 year, but potentially may have a loss year for 2021, the payment of the full provisional tax amount in May can result in an overpayment of tax, which otherwise would be retained for the business.
Provisional Tax Payment Threshold – The threshold for the payment of provisional tax is increasing from $2,500 to $5,000. This will not reduce the amount of tax paid, but it will defer the payment for many taxpayers.
Building Depreciation – for commercial and industrial buildings will be reintroduced. The rate will be 2% diminishing value or 1.5% straight-line. This will reduce the quantum of tax to pay. There may be recovery on the sale of the property, but our view is to take the deduction now and deal with the repayment upon the sale of the property.
Tax Loss Continuity Rules – businesses that are experiencing losses frequently seek new equity. The present law provides that tax losses are lost if continuity of 49% is not maintained.
It is proposed that a law change will allow for tax losses to be carried forward, provided that the business continues to operate in the same sector.
Interest and Penalties – IR will have the power to remit use of money interest and penalties on tax that was due to be paid on or after 14 February 2020, where the ability to pay has been significantly impacted either physically or financially by Covid-19. The taxpayer is expected to contact IR as soon as practicable to request relief. The types of relief available include:
- Instalment arrangement
- Instalment arrangement – deferred payment start date
- Partial write-off due to serious hardship
- Full write-off due to serious hardship
- Partial payment and write-off the balance under maximising recovery of outstanding debt
Where existing debt is under arrangement and making payment is difficult, this can be renegotiated and any of the above options may apply.
Commercial Leases – A tenant leasing commercial property may be able to avoid paying the full lease. This is good news for the lessee, but not the lessor. If the lease has been drawn up on a recent standard Auckland District Law Society lease agreement, there are clauses in the agreement that provide that in the event that a property cannot be accessed due to an emergency declared by an appropriate body, then the parties need to reach agreement as to what is fair. If the business is able to continue remotely with minimal interruption, then fair may mean paying the full lease. There is another provision that if the lack of access extends beyond a certain nominated period, then either the lessee or the lessor can terminate the lease. Follow this link to see a video from Waterstone Insolvency and Norling Law that outlines the intricacies.
Financial Support – government backed support through the banks is available for businesses and home owners. The key points are:
- Six month principal and interest payment holiday for mortgage holders and SME customers. Interest will still accrue, but will not need to be paid during this period.
- Businesses with a turnover of at least $250,000 may be eligible for a loan up to $500,000. The loan would need to be repaid within 5 years.
- In addition, the retail banks have other offerings that will ease the impact of the lockdown. Consult your bank for these details.
Insolvency Relief – Urgent law changes to the Companies Act seek to give company directors temporary relief from potential personal liability when the business faces significant liquidity problems.
The measures aim to keep businesses trading and New Zealanders in jobs by preventing businesses being prematurely placed in administration or liquidation.
The temporary changes include:
- giving directors of companies facing significant liquidity problems because of COVID-19 a ‘safe harbour’ from insolvency duties under the Companies Act.
- enabling businesses affected by COVID-19 to place existing debts into hibernation until they are able to start trading normally again. This will enable businesses to keep trading provided they can meet new commitments.
- allowing the use of electronic signatures where necessary due to COVID-19 restrictions.
- giving the Registrar of Companies the power to temporarily extend deadlines imposed on companies, incorporated societies, charitable trusts and other entities under legislation.
- giving temporary relief for entities that are unable to comply with requirements in their constitutions or rules because of COVID-19.
The changes will not cover serious breaches of duty.