These are unprecedented times for the people of New Zealand. The compulsory lockdown announced by the Government last Monday matches similar moves overseas and will bring much disruption and challenges to our normal way of life as we battle to contain the spread of the Covid-19 virus.
While the Government has announced some financial support measures for businesses to assist them with the payment of wages for employees, it is clear that there will be large job losses and there are already many businesses throughout New Zealand in financial difficulty, particularly in the hospitality, tourism and retail sectors.
The last week has been very demanding for financial service providers such as chartered accountants who are dealing with major disruptions to their own businesses due to the four-week lockdown as well as the financial issues and concerns of their clients. Fortunately, many businesses like ours have invested in remote working capability over recent years so those essential services such as payroll processing and PAYE and GST filing will continue as normal, but in a slightly different manner. We recommend that all businesses continue to file PAYE and GST returns as normal by the due date, and if you can’t make payment to Inland Revenue Department because of financial difficulties, let them know prior to the due date so that an arrangement can be made. The Government has already announced that the IRD is going to be relaxing its stance on the receipt of income tax and GST revenue in the short term, and in most cases any IRD interest for late payment will be waived for businesses affected by the Covid-19 virus.
At the time of writing this article the Government had announced two main economic support packages for businesses affected by Covid-19. The Wage Subsidy is available for all businesses that have had a drop in income of over 30% that continue to pay employees a minimum of 80% of their normal income. The wage subsidy is paid at a flat rate of $585.80 a week for employees working 20 hours or more per week, or $350 a week for employees working less than 20 hours per week. The subsidy is paid as an upfront lump sum and covers 12 weeks per employee, so this equates to just over $7,000 per full time employee.
The second payment available to businesses is the Leave Payment. This is available to support businesses for employees that need to self-isolate as determined by the Ministry of Health Guidelines or cannot work because they are sick with Covid-19 or they are caring for dependents who are required to self isolate or are sick. The receipt of the subsidy and payment to employees will be cash neutral for businesses, but the payment to employees must be taxed with PAYE and KiwiSaver in the normal manner. Many businesses are now looking at ways to continue paying staff at an appropriate level and this will include employees having to use up leave entitlements in many cases. Some employees may wish to take temporary contributions holidays for their Kiwisaver. Good communication between business owners and their employees over this difficult time is essential.
The Government have also announced other areas of tax relief, including an increase in the provisional tax threshold to $5,000 (from $2,500) from the 2021 financial year onwards, and in addition, assets used for a business with a cost of $5,000 or less can be written off fully in the year purchased during the 2021 financial year. Depreciation is also being allowed on commercial and industrial buildings. The Government has also been working with banks who will be assisting borrowers affected by Covid-19 with mortgage payment holidays. There will be more to come, and more detail released as time goes on.
We note that many farmers and agricultural service businesses have been coping with drought conditions and now Coronavirus on top of this. While the assistance given for farmers suffering from the drought are very minimal, we do see agriculture as being one industry that will help to kick start the economy as it makes its gradual recovery after Covid-19. It is clear that food production is vital not only to New Zealand, but the rest of the world. It certainly meets the definition of an essential service!
Let’s get through these difficult times together. Remember to keep paying your bills as businesses need to pay staff and the economy needs to keep moving. Enjoy time spent with family, be kind and look out for each other and stay safe.