The Government has announced their economic support package for the NZ economy with the intention of providing short-term stimulus to the economy while supporting the isolation measures necessary to slow the spread of COVID-19. They have indicated that further responses to the situation will be provided in Budget 2020 (delivered on 14 May 2020) and these responses are expected to be focused on economic recovery and rebuilding. The Minister of Finance has signalled that further support will include working capital support for small and medium businesses and targeted support for larger and complex businesses.
The Government’s view is that the OCR reduction and deferral of additional bank capital requirements announced by the Reserve Bank should also help banks better support NZ businesses.
The Economic Support Package includes the following which are specifically targeted to business:
Wage subsidy scheme;
Leave and self-isolation support; and
Business cash flow and tax measures.
So what does this mean and who qualifies for this support?
Wage Subsidy Scheme
Wage subsidies will be available for all businesses that can show a 30% decline in revenue for any month (actual or projected) between January and June 2020 compared to the year before. The scheme is open to all businesses including sole traders and the self-employed. Your business must meet the following criteria to qualify for the subsidy:
Your business must be registered and operating in NZ;
Your employees must be legally working in NZ;
The business must have experienced a minimum 30% decline in actual or predicted revenue over the period of a month when compared to the same month last year, and that decline is related to COVID-19;
Your business must have taken active steps to mitigate the impact of COVID-19; and
You must make best efforts to retain employees and pay them a minimum of 80% of their normal income for the subsidised period.
The subsidy will be $585.80 per week for a full time employee (20 hours or more per week) or $350.00 per week for a part time employee (less than 20 hours per week). The subsidy is available for a period of 12 weeks and payment will be made in a lump sum for the full period. So if you qualify you can receive a payment of $7,029.60 for a full time employee and $4,200.00 for a part time employee.
The maximum subsidy that any employer can receive is $150,000 which is the equivalent of receiving the full time subsidy for 21 employees. Businesses can only receive the subsidy once.
Leave and Self-Isolation Support
To encourage workers and businesses to take the necessary steps to prevent the spread of COVID-19, the leave and self-isolation scheme will support workers financially to self-isolate, or while ill with COVID-19, where this is required.
The COVID-19 Leave Payment is available to employers, contractors, sole traders and the self employed who:
Need to isolate in line with Ministry of Health Guidelines and have registered as needing to self-isolate with Healthline, cannot work from home and their self-isolation is not because they left NZ since the travel restrictions on 16 March 2020 and have since returned; or
Cannot work as they have been diagnosed with COVID-19; or
Cannot work as they are caring for dependents who are required to self-isolate or who are sick with COVID-19.
The COVID-19 leave payment will be $585.80 per week for a full time employee (20 hours per week or more) or $350.00 per week for part time employees (20 hours or less per week). The payment is available as follows:
Employers receiving the payment for employees required to self-isolate can receive it for 14 days.
As people may be required to self-isolate more than once, employers are able to apply for this on an “as needed” basis ie you will be able to apply for this subsidy as often as it is required;
Where an employee has been diagnosed with COVID-19 or is caring for dependents who are sick with COVID-19, the payment is available for the entire period that they are sick but you must apply every 14 days.
The leave payment is available for 8 weeks from 17 March 2020.
How to apply for the Wage Subsidy and Leave Payment
WINZ are responsible for administering the subsidy and have advised that they are aiming to make payments to businesses 5 working days after receiving all the information that they need. At this stage we do not know exactly what they will require to review an application. The application form is simple and requires basic business information like name, contact information, IRD number, NZ Business Number (NZBN) and details of the employees that you are applying for (Full Name, Date of Birth, IRD Number and Employment Type). You also have to confirm that you have read and agree to their terms and conditions, which includes confirmation that you meet the entitlement criteria and being subject to audit or review.
More specific information and the application forms for the Wage Subsidy and Leave Payment can be found here.
Business Cash Flow and Tax Measures
In addition to the direct financial support outlined above, the government has also announced a number of business cash flow and tax measures to ease the pressure. They include:
Giving IRD discretion to remit use-of-money interest (UOMI) for customers adversely affected by COVID-19;
Increasing the provisional tax threshold from $2,500 to $5,000 with effect from 1 April 2020;
Increasing the small asset capitalisation threshold to $5,000 for one year from 1 April 2020 and then reverting to $1,000 from 1 April 2021 (permanently increased from current threshold of $500);
Reinstating a 2% diminishing value (DV) depreciation claim on commercial and industrial buildings with effect from 1 April 2020; and
Removing the hours test from the In-Work Tax Credit (IWTC) from 1 July 2020.
Many businesses have a significant cash outflow in the immediate future as a result of 2019 Terminal Tax payments which are due on 7 April 2020 and the final instalment of 2020 provisional tax which is due on 7 May 2020. If you are concerned about your ability to make these payments then we recommend that you get in touch with your accountant or the IRD as soon as possible to put a plan in place for these payments.
We have received advice from IRD that the proposal to allow them to remit use-of-money interest is contingent on legislation being passed to enact this change of position. This legislation will be introduced shortly and proceed under urgency to ensure that it is promptly enacted. It is expected that this concession could apply for all payments (irrespective of tax type) due on or after 14 February 2020 and interest could be remitted for a maximum of two years from the date of enactment. IRD have advised that there will be no further guidance on this until the legislation has been enacted.
So what do you do now?
My immediate concerns when reviewing the support package when it was launched by the Government was that this did not address the impacts being felt by businesses that were operated by sole traders, contractors or the self employed. This sector of our economy is significant and it is critical that they receive support alongside more traditional employers. However, on further review of the information provided by the Government it does appear that all of these situations will be covered by the provisions that the Government has put in to place. There is limited information available on exactly what they will require to confirm eligibility so we will have to see how this washes out as businesses work through the application process.
If you are experiencing a significant decline in your business as a result of COVID-19 or you have staff that qualify for the Leave Payment, we recommend that you get an application into WINZ as quickly as possible to get the process started. Initial applications are easy to complete and can be submitted here as shown below.
We also encourage you to be proactive with the situation - Your first action should be to talk to your financial advisers and make sure you have a plan in place to deal with your immediate concerns. They will be able to help you work out what you are entitled to in terms of Government support, provide you with options to consider in terms of business continuity and help you talk to your bank or funders to ensure that you are in a position to weather the storm that is COVID-19.
If you need help with your financial situation or to ensuring business continuity, get in touch with the team at Thrive CA to schedule a time to discuss your particular issues or concerns.