COVID-19 ECONOMIC PACKAGE

On Monday 16 March 2020, the NZ Government imposed a 14-day self-quarantine on all international travellers, denying cruise ships from making port. This has heavily affected tourism, one of the main sources of GDP in New Zealand.  Adding salt to the wound, international markets and business has fallen significantly, with many economists have foreseen the inevitable recession. 

The NZ Government has responded with a radical $12.1 billion relief package to help the local people and businesses to keep roofs overhead.  This article will summarise the aspects of the NZ Governments’ economic relief package we believe are most applicable to SME businesses and individuals.

“When your house is burning down, you don’t worry about the remodelling”
– Arianna Huffington

Wage Subsidies

Wage subsidies will be available for all employers that are significantly impacted by COVID-19 and are struggling to retain employees as a result. The scheme will be open to sole traders and the self-employed as well as firms.

Which businesses are eligible?
Businesses are eligible to apply for wage subsidies if they can show a 30 percent decline in revenue for any month between January and June 2020 compared to the year before, including projected revenue loss during the period of the scheme.

What must businesses do?
Employers must declare that, on their best endeavours, they will continue to employee the affected employees at a minimum of 80% of employee income for the duration of the subsidy period.  In other words, paying their employees 4 out of 5 working days.

Employers must also take active steps to mitigate the impact of COVID-19 (such as engaging with their bank/financial advisor) and sign a declaration form to that effect.

How much can be claimed?
Depending on the type of employees, you will receive a lump sum payment for a period covering 12 weeks:

• Full time employees (FTE) (20 hrs or more) = $585.80/week – total of $7,029.60 per FTE; and
• Part time employees (PTE) (less than 20 hrs) = $350.00/week – total of $4,200.00 per PTE.

A maximum of $150,000 can be claimed by any one employer (around 21 FTE).

Other notes
At the current stage, it is unclear if in the future, further checks on profit and loss to adjust the wage subsidy for labour intensive business (such as hospitality, manufacturing, service to name a few).  Further, the nature of the declaration form and the objective requirements have not been disclosed but an educated guess would be genuine attempt and actions in good faith.

Turnover is vanity, Profit is sanity, but Cash is King!

Business free up cashflow

Depreciation expense – Reintroduce 2% DV to commercial buildings
This will be reintroduced for new and existing industrial and commercial buildings, including hotels and motels to help with cashflow in the near-term and stimulating business investment in new and existing commercial buildings.  This will be a permanent change and applied at 2% diminishing value.

Low value assets – increasing immediate deduction threshold
The threshold for low value assets purchases will be introduced to reduce compliance costs and stimulate business purchases.  Low value assets can be immediately fully deducted in the year purchased, rather than spreading the cost over the life of the asset.  

Taxpayers will be able to deduct the full cost of low value assets for the 2020-2021 income year for assets up to $5,000 compared to the previous $500. After which it will be reduced to the permanent $1,000 level.  The rates will be implemented as follows:

• 2019-2020 (generally 1 Apr 2019 to 31 Mar 2020) – $500 low value assets;
• 2020-2021 (generally 1 Apr 2020 to 31 Mar 2021) – $5,000 low value assets; and
• 2021- onwards (generally 1 Apr 2021 – onwards) – $1,000 low value assets.

Provisional Tax Relief – increasing provisional tax threshold 
From the 2020-2021 income tax year onwards, the threshold for having to pay provisional tax will increase from $2,500 to $5,000 to allow small taxpayers to delay paying their taxes.  Instead of having to pay in installments throughout the year, it will lower compliance costs and allow taxpayers to retain cash for longer.

Use of Money Interest – some late tax payments interest waived
Inland Revenue will have the power for two years to waive interest on late tax payments for taxpayers who have had their ability to pay on time significantly adversely affected by the COVID-19 outbreak.

Taxpayers will need to show an inability to pay taxes by the due date as a result of being significantly. Detail on objective tests is yet to be finalised but will be in the coming days.

Welfare Income Support
Welfare income support has three main changes to be introduced in a staggered manner:

1. From 1 April 2020, main benefits will rise by $25/week;
2. From 1 May 2020, Winter Energy Payments will be paid at double the current rate for 2020 only:
   • Single person – $40.91/week; and
   • Couples or people with dependents – $63.64/week.
3. From 1 July 2020, working families will no longer need to be “normally” working to qualify for the In Work Tax Credit:
   • Sole parents – 20hrs/week; and
   • Couples with children – 30hrs/week.

This is an informative piece and should not be relied upon as legal or tax advice as it may not apply to your personal circumstance.  It is not intended to provide a complete overview but rather the key points we believe are important for our clients.

If you would like to know more, contact us for a consultation.