COVID-19 Government Support

Covid-19 Wage Subsidy - Feel free to read the FAQ Document below

The Government has stepped up to assist employees by providing a wage subsidy scheme for which all employers can apply. Provided they meet certain conditions, employers can receive $585.80 for employees working 20 hours or more per week, and $350.00 for employees working less than 20 hours per week, paid as a lump sum covering 12 weeks per employee.

Since its announcement, the scheme has gone through several iterations. Broadly though, these key criteria have remained constant:

  1. Your business must have experienced a minimum 30% decline in actual or predicted revenue over the period of a month when compared with the same month last year (note changes for new and high growth businesses), and that decline is related to COVID-19;
  2. Your business must have taken active steps to mitigate the impact of COVID-19 (including but not limited to engaging with your bank, drawing on your cash reserves as appropriate, making an insurance claim and most likely talking to your accountant!); and
  3. You must make best efforts to retain employees and pay them a minimum of 80% of their normal income for the subsidised period.

I stress though this may not be the best option as an employer to take. Weigh up the additional costs of paying your employees (ACC, Holiday Pay, Kiwisaver) and make sure you make the best decisions to keep your business running in the long term. Also note that you can apply for this as a Shareholder Employee, Contractor or self employed. Even if you only have part time Self Employed work you can apply even if your employer in another job has applied for you.

Also important to know that your normal employer obligations still apply. Kelly from ThinkHR has put a lot of this together and has been awesome in regards to advising people about the correct procedure and policies to have when going through the wage subsidy.

Loss Carry Back Scheme

The Government recently released the details ona Loss Carry Back Scheme (as well as loosening the shareholder continuity requirement to carry forward losses).

In basic terms if you made $100,000 profit in a company in 2019 you would have paid $28,000 in tax. Fast forward to 2020 and somehow it hasn't been your year and you make a $100,000 loss. Then you can use that to offset prior profits and get your $28,000 paid for 2019 refunded. For COVID the effect has been in March 2020 onwards. So likely this won't effect your 2020 year hugely. This means this scheme is used by forecasting 2021 to be a loss and try get some of your 2020 tax refunded to cover the short term cashflow issues.

As long term options these are great. Hopefully they pass this into law for the future. I strongly suggest you tread very carefully in using it by estimating a loss for 2021. UOMI rates are at 8.35% and payment penalties can lift the rate up to well over 10%. Then you have the added complication of estimation which can cause penalties on shortfalls of 20% to 150% (fraudulent estimations). Now these numbers are not confirmed as we haven't had confirmation on any cost other than UOMI however please talk to your accountant and lender to decide whether you take this approach. Other options will be available to you.

Writing off Interest and Penalties

This has been widely spread as being automatic. The answer is no. The commissioner has the ability to should you be late for a payment to write off interest and penalties if you meet the following criteria:

  • Tax payer has tax that is due after 14 February 2020
  • Tax payers ability to pay by the due date has been "significantly" affected by COVID-19
  • Tax Payer 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 possible.

If you are like me and worry about the word "significanly" and what that really means in a year where our tax take will be low then we also have options. It comes true that cash is king. You may not be able to pay your taxes now in fear of running out and going out of business.

The option I see as better is Tax Traders. They are currently providing an agreement to finance tax. For example the upcoming 7 May payment could be delayed for 12 months with the payment of a upfront interest fee. This fee will be fully refundable to you should you then qualify for relief by the commissioner. Note reach out for a quote on specific interest costs but I can guarantee you it will be a fraction of the rate charged (if so) by the Inland Revenue.

Note also the ability to delay tax payments has been granted to the Inland Revenue however no decision has been made yet.

Other Tax Relief Options

Please reach out and discuss the other options available. These range from extending the small value depreciation of assets (100% in first year) from $500 to $5,000, certificate of exemptions available for contract workers who have witholding tax deducted, ability to stop student loan payments, ability to go on a payment holiday for Kiwisaver and other non tax related support options.