Many of these changes implemented by the Government will help with your business cashflow and will also assist with the economic recovery from COVID-19.

Depreciation on Commercial Buildings

This applies form 1 April 2020 on all commercial and industrial buildings. It does not apply to residential buildings (ie long term rentals and short-term rentals like Air B&Bs). This will encourage investment in new and existing buildings by creating a tax deductible claim to offset profits and reduce tax payments.

Increasing Provisional Tax Thresholds

If your tax bill at year end is above $5,000 from the 2021 tax year, you will become a provisional tax payer. The previous threshold was $2,500. This means there will be more smaller businesses that can delay their tax payment until 7 April the following year to retain that cash for longer.

Low Value Assets threshold increase

From 17 March 2020 – 16 March 2021, low value assets under $5,000 can now be deducted in full in the year of purchase, instead of being deducted over the life time of the asset. The threshold will be dropped to $1,000 from 17 March 2021 and permanently stay at this level. Claiming these low value assets in full means your profit will be lower and give you a decrease in your year end tax bill.

Use of Money Interest and Penalties Remission

IRD can now remove interest and penalties for businesses who have late paid their taxes. This applies to all taxes (PAYE, GST, INC etc). This is for all tax payments due from 14 February 2020. Filing of tax returns must still be done on time.

 

New IRD initiatives – 15^th April 2020:

 

Flexibility of statutory tax deadlines

IRD will have discretion to change the due dates for filing tax returns and making tax payments.

Changes to Tax Loss Continuity rules (2021 Tax Year)

A “same or similar business” test will now be used for companies wanting to raise capital through ownership investment. Currently if a company has more than a 51% change in ownership it cannot keep its tax losses. These rules will allow the company to retain and carry the losses forward.

Tax Loss carry-back scheme (2020 Tax year onwards)

If you have a loss in a particular tax year, you can offset this against the profits of a prior year. This means you will receive a refund of the tax that was paid in the previous profitable year – carrying the loss back one year.

Student Loans                         

If you are struggling to make your student loan payments, you can now apply to reduce the required repayment amount.

Home office reimbursements for employees

If employees are working from home, you can pay them a non-taxable allowance. Up to $5 per week for phone usage and up to $15 per week for general costs to help cover internet, power etc. These are deductible for the business owners paying the allowance, and non-taxable for the employee receiving it.

 

 

If a business has already received the original wage subsidy lump sum, they are required to continue to use that funding to pay employees for the full 12-week duration as agreed to in the initial application.

Pending applications made prior to 3pm Friday 27 March 2020 will be assessed against the original criteria of the wage subsidy scheme. Only applications received from 4pm on 27 March 2020 will have new criteria and obligations applied.

The original scheme was capped at $150,000 per business, which meant that some larger businesses couldn’t claim for all their workers, but this cap has been removed. There have been no further modifications to this criteria which means the modified scheme is also uncapped.;

Businesses can make new claims for any employees that they did not apply for under the original scheme.

Once you receive the subsidy:

• You must retain the employees for the full period (12 weeks) you apply for.
• You must use your best endeavours to pay at least 80% of each named employee’s ordinary wage or salary that you apply for;
• Where paying the employee 80% is not possible, for example where all business activity has ceased, then you must pass on at least the whole value of the wage subsidy to each affected worker. Note: if the worker’s income is normally less than the subsidy, they can be paid their normal salary

If employees that you receive the wage subsidy leave or other changes occur in your business that affect your eligibility for the wage subsidy, the link to repaying the subsidy is below. We recommend you talk to us before filling in this form.

 

https://www.workandincome.govt.nz/products/a-z-benefits/covid-19-support.html#null

 

Wage Subsidy Record Keeping

Please keep notes of any conversations and calculations you have done prior to applying for the wage subsidy that could support you have done the following:

• Decline in of 30% in actual/predicted revenue compared to the same month for the prior year (this one will probably be easier to show in hind sight).
• The decline in revenue is due to COVID-19
• Details of active steps taken to mitigate the impact of COVID-19 (contacting bank, advisor, industry association)
• Correspondence with staff that you applied for the wage subsidy and updating them of pay during lockdown etc.

 

In the following months we will need to gather this information and have it saved on file should work and income do an audit on your eligibility for the wage subsidy

 

Contact Us for more info.

Following the government’s announcement on Monday, you may be wondering what you need to do with your staff. All non-essential businesses are required to close from 11:59 pm on Wednesday 25 March 2020.  We are doing our best to keep you informed, however some of the terms around paying employees during the lock-down period are not very specific.
Below is a course of action which should fall in-line with the guidance provided.

Working from home

Where employees can work from home, they should do so and can be paid accordingly.

Example: Brett normally works a 40 hour week. Brett is able to work from home however his hours have reduced to 32 hours a week. He is paid for the hours he works (32 hours) as he is still doing 80% of his normal weekly wage.

Where employees cannot work from home

Where employees can’t work from home, you can pass on the wage subsidy ($585.8

0 or $350.00 per week). You could negotiate with your employees to use some of their annual leave to top them up to 80% of their normal pay (the guidance on what to do specifically in this case is was not very clear). The IRD have now clarified (in the link below) that it is up to the employer whether they top it up.

Example: Mary normally works a 40 hour week ($1,000 gross wage per week) but is unable to work from home. Her employer has applied and received the wage subsidy for her from Work and Income due to being affected by COVID-19 (i.e. Mary is still employed but due to the lockdown is unable to work).

When Mary’s pay gets processed for her first week of the lock down, her employer pays her the wage subsidy of $585.80 (less tax). This is 59% of her usual wage. Mary and her employer may negotiate to use $214.50 of her annual leave or by an employer contribution to bring her up to $800.00 (which would be 80% of her normal wage).

Payroll systems:

Crystal Payroll: Crystal has automatically set up a COVID-19 Leave type and a COVID-19 Wage Subsidy income type which you can use when paying employees.

Xero Payroll: You need to create the new COVID-19 unpaid leave type and COVID-19 earnings type. (Let us know if you are on Xero payroll and we will provide assistance on doing this).

Let us know if you want us to review the first pay you process for your employees.

Wage Subsidy

Wage subsidies are available for affected employers to subsidise an employee’s pay by $585.80 per week for an employee who works 20 or more hours per week, or $350.00 per week for employees who work less than 20 hours per week. A condition of receiving the wage subsidy requires that you have a downturn in profit of 30% from the same month the year before, and that you make best efforts to top up an employee’s pay to 80% of their normal pay from the subsidy amount where possible. Presumably the government would prefer that employees receive at least the subsidy amount and remain employed, as opposed to receiving nothing (or moving on to a benefit). The purpose of the subsidy is to keep employees employed. Any business that has had to close due to the lockdown will likely qualify for the wage subsidy.

You will need to apply for the subsidy via the Work and Income website and complete and application form.  If the wage subsidy is approved, the subsidy will be paid directly into your business bank account 5 days from it being accepted (the whole 12 weeks is paid in a lumpsum), and you should then pass this on (per pay period) to your individual employees. The link to the application form is below:

Work & Income – A-Z Benefits

Some useful facts regarding COVID-19 tax related issues from IRD are in the link below:

IRD – Your Questions Answered

We understand these are uncertain times however, all our staff at Hunter McLeod will be contactable and working from home during the 4 week lock-down period.
Please contact us if you have any queries, we are here to help.