The most significant peace-time economic plan in modern New Zealand history to cushion the impact of COVID-19 in the fight to support Kiwis’ jobs and the domestic economy from the virus.
We thought it might be a good idea to make this information easily available to all our clients, so please find a summary of the benefits and also links to where you will be able to apply for these benefits in our latest article.
Overview: There are three main changes to welfare settings.
• Firstly, main benefits will rise by $25 per week. These changes will come into effect on 1 April 2020 and are permanent.
• Secondly, to support beneficiaries and superannuitants, the rate of Winter Energy Payment will double in 2020. This change is temporary.
• Thirdly, from 1 July 2020, working families with children who are not receiving a main benefit and have some level of employment income each week will no longer have to satisfy the hours test to receive the In Work Tax Credit.
Estimated total cost: $2.8 billion over the next four years.
• $480 million additional spend on the Winter Energy Payment in 2020
• $2.4 billion over the next four years to increase main benefits
These costings do not include the removal of the hours test, however is estimated to cost approx. $32 million per annum.
Timing for additional entitlements:
Recipients will not have to do anything to receive these additional entitlements. The additional support will be calculated automatically.
• Main benefits will increase on 1 April 2020 in line with wage growth (indexation) AND then by an additional $25 per week.
• Winter Energy Payment will start on 1 May 2020 and be paid at double the current rate for 2020 only. The rates for 2020 will be $40.91 per week (single people) and $63.64 per week (couples or people with dependents).
• From 1 July 2020, working families will no longer need to be “normally” working at least 20 hours a week (sole parents) or 30 hours a week (couples with children) to be eligible for the IWTC.
Changes to the In Work Tax Credit
The In Work Tax Credit is an income-tested cash payment of $72.50pw ($3,770 per year) to working families with children.
Under current settings, to be eligible families must be “normally” working at least 20 hours a week (sole parents) or 30 hours a week (couples).
Removing the hours test will extend eligibility for the IWTC to all families who are not receiving a main benefit and have some level of employment income each week. This is an important change as people may face a reduction of, or variable hours, in the wake of the COVID-19. Around 19,000 low-income families would benefit from this change.
Example: A is a sole parent that works 20 hours per week normally, earning income, and not receiving a main benefit. Because of this, A is eligible to receive the IWTC. However, in light of COVID-19, A’s hours may be reduced to 10 hours per week. Because of this, she would no longer be entitled to the IWTC. This change will allow A to continue to receive the IWTC in these circumstances.
Reintroducing depreciation on commercial and industrial buildings
Overview: Depreciation deductions will be reintroduced for new and existing industrial and commercial buildings, including hotels and motels. This will help support businesses with cashflow in the near-term and assist with the broader economic recovery by stimulating business investment in new and existing buildings.
Reinstating building depreciation will support longer-term economic productivity and macroeconomic objectives by:
• encouraging investment in business premises and decreasing the cost of such premises over time;
• improving business confidence; and
• enabling the capital cost of seismic strengthening of buildings to be depreciated.
Estimated total cost: $2.1 billion over the current forecast period (until 2023/24)
Payments able to be applied for, and received from: A Bill containing this measure will be introduced shortly. The law will allow owners of commercial and industrial buildings (including hotels and motels) to start reducing their provisional tax payments for the 2020-21 income year immediately. There is no application process as the increased deduction will be available as part of normal tax filing processes.
Jane owns (through her company) a motel building with a tax book value of $3m. Under current tax law it is not depreciated. From 2021/22 Jane is able to depreciate the building at a rate of 2%, which means her company can claim a deduction of $60,000 in the 2021/22 year, reducing her taxable profit. This results in her company having $16,800 less tax to pay that year (as the company tax rate is 28%).
Immediate deductions for low value assets
Overview: Taxpayers will be able to deduct the full cost of more low-value assets in the year they purchased them, rather than having to spread the cost over the life of the asset. Taxpayers are currently able to claim an immediate deduction for the purchase of assets that cost less than $500. This threshold will be further increased to allow the immediate expensing of assets that cost up to $5,000, for a year (2020-21 income year). The temporary increase (to $5,000) is designed to incentivise taxpayers to bring forward investments to encourage spending. The threshold is being permanently increased to $1,000 (from 2021-22 income year onwards). This will reduce compliance costs for businesses and encourage businesses to continue investing.
An increase in the threshold for writing off low value assets will reduce compliance costs for businesses. It will also have the side-benefit of stimulating business purchases (although overall impacts on demand are likely to be small).
Estimated total cost: $667 million over the current forecast period (until 2023/24).
Payments able to be applied for, and received from: This will take effect for expenditure made on or after 1 April 2020 for most taxpayers.
Capes Comics Limited (Capes) is a comic store that sells comics and comic-related merchandise who wants to expand by investing in two new display cabinets worth $4,600 in total. Clark believes this will increase his sales of high-value action figures.
However, with the COVID-19 restrictions he is anxious about investing the $4,600 especially given he can only deduct the cost of the cabinets over time through tax depreciation, and not immediately.
The Government’s change to the low value asset write-off threshold will mean that Capes can claim an immediate deduction for the cost of the cabinets, meaning it can reduce the tax paid this year by $1,288, instead of that amount being spread over a number of years.
Fewer small businesses having to pay provisional tax
Overview: Increasing the threshold for having to pay provisional tax from $2,500 to $5,000 allows more small taxpayers to delay paying their taxes. This means they have until 7th February following the year they file to pay their tax, instead of having to pay in instalments throughout the year. This lowers compliance costs for smaller taxpayers and allows them to retain cash for longer.
Estimated total cost: $4 million over the forecast period.
Payments able to be applied for, and received from: Taxpayers that would have otherwise been paying provisional tax in the 2020-21 tax year will now be able to pay their tax on 7th February 2022 – providing immediate cashflow benefits estimated to be $350 million in the 2020/21 fiscal year.
Further details: This measure has a one-off cash impact on Government net-debt, increasing it by $350 million in 2020/21. This is due to differences in tax payment timings.
Jenny is a tour guide who provides tours of the Lord of the Rings filming location sites around Wellington through her company Jenstar Tours Limited (JTL). She gets the majority of her customers from tourist ships visiting Wellington. In the 2019-20 income year JTL’s tax liability was $8,000 but because of the recent changes to address the spread of COVID-19 its 2020-21 tax liability is expected to be half that amount.
The change in threshold from $2,500 to $5,000 will mean that JTL will not be a provisional taxpayer for the 2020-21 income year, so instead of paying tax throughout the year, JTL will not have to pay tax until 7 February 2022, which improves her cashflow during the year.
Writing off interest on some late payment of tax
Overview: The Commissioner of Inland Revenue will be given the power to waive interest on late tax payments for taxpayers who have had their ability to pay their tax on time significantly adversely affected by the COVID-19 outbreak. Use of Money Interest (UOMI) is routinely charged on late tax payments.
Estimated total cost: This measure will result in foregone Crown Revenue. The amount of foregone revenue is not able to be quantified at this time. This will not result in a fiscal cost to the Crown accounts because the Government’s fiscal forecasts currently do not include COVID-19 related UOMI charges.
Payments able to be applied for, and received from: The relief will apply to interest on all tax payments (including provisional, PAYE, and GST) due on or after 14 February 2020.
Further details: The Commissioner will have this power for two years.
Duration of the scheme
Two years from date of enactment of announcement, unless extended by Order in Council
Businesses and individuals will need to show an inability to pay tax by the due date as a result of being significantly adversely impacted by COVID-19. Detail on objective tests is yet to be finalised but will be in the coming days.
Corrine owns a small café. In the last few weeks the business experienced a sharp decline as people avoid going out due to concerns about COVID-19.
Because of the effect of COVID-19 on the business, her turnover is about half of what it was a year ago, and she won’t be able to pay an upcoming tax bill in full. She’s tried to get a further extension to the business overdraft from the bank, but has been unsuccessful.
There are a range of options Inland Revenue has to help customers who are struggling to meet tax payments. Working through these options, Corrine is able to enter into an instalment arrangement to pay off the tax bill over the next six months.
This new measure will allow Inland Revenue to write off any use of money interest on this debt.
Information is updated regularly. Check www.workandincome.govt.nz for latest details
MSD has two payments available to support employers affected by COVID-19. For latest details of the full range of support for businesses please visit https://www.employment.govt.nz/about/news-and-updates/workplace-response-coronavirus-covid-19/
COVID-19 Wage Subsidy
The Government has put together a COVID-19 Wage Subsidy for employers in all regions.
It’s to support your business if you are impacted by COVID-19 and face laying off staff or reducing their hours because of COVID-19.
If you are an employer, contractor, sole trader or self-employed you may qualify to get the COVID-19 wage subsidy.
• your business must be registered and operating in New Zealand
• your employees must be legally working in New Zealand
• the 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, and that decline is related to COVID-19
• your business must have taken active steps to mitigate the impact of COVID-19
• you must make best efforts to retain employees and pay them a minimum of 80% of their normal income for the subsidised period.
More information on the qualifying definitions is available at www.workandincome.govt.nz/covid19support
The COVID-19 Wage Subsidy will be paid at a flat rate of:
• $585.80 for people working 20 hours or more per week
• $350.00 for people working less than 20 hours per week.
The subsidy is paid as a lump sum and covers 12 weeks per employee.
This subsidy is for wages only. It is to help you keep your staff employed while you consider changes that may be needed while the disruption continues, and to ensure the future viability of your business.
The maximum subsidy that can be paid to a business is $150,000. Businesses can only get this subsidy once.
COVID-19 Leave Payment
Self-isolation is an important way to slow the spread of COVID-19. From 17 March 2020 the COVID-19 Leave Payment will be available to support people financially if they need to self-isolate, cannot work because they are sick with COVID-19 or cannot work because 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 available for eight weeks from 17 March 2020. Employers can apply for this more than once.
It will be paid to employers who have eligible employees and they must pass the payment onto their employees in full.
Information is updated regularly. Check www.workandincome.govt.nz for latest details
If you are an employer, contractor, sole trade or self-employed you may qualify to get the COVID-19 Leave Payment.
COVID-19 Leave Payment covers full-time, part-time and casual employees, and contractors who are legally working in New Zealand and who:
• need to self-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 because the person has been diagnosed with COVID-19, or
• cannot work because 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 paid at a flat rate of:
• $585.80 to a person working 20 hours or more per week
• $350.00 to a person working less than 20 hours per week.
Employers receiving the payment for employees who are required to self-isolate can receive it for 14 days. As people may be required to self-isolate more than once, employers will be able to apply for this on an ‘as needed’ basis. It can be paid for the entire period an employee is sick (or looking after a dependent person who is sick) with COVID-19 but the employer must apply every 14 days.
Using paid leave entitlements or COVID-19 Leave Payment when self-isolating
You and your employee can agree to use any form of paid leave (eg annual leave) to cover their period of self-isolation.
However, employees aren’t required to have used any or all their paid leave entitlements before they can receive this payment.
Eligible employers and employees
When applying for the Leave Payment the employer will consider whether:
• the employee was legally working for their employer at the time they decide to self-isolate, and
• they were expected to work for the period of self-isolation.
Self-employed people who are legally working in New Zealand are eligible for the payment if they:
• are usually earning the minimum wage when they decide to self-isolate, and
• were expecting to work for the period of self-isolation, and
• cannot draw an income for the period of self-isolation.
Some people aren’t eligible for the payment, including:
• self-employed people not earning at least the minimum wage
• people not legally working in New Zealand.
Information is updated regularly. Check www.workandincome.govt.nz for latest details
State sector employers cannot receive the payment as it is expected they will pay employees their normal wages through periods of self-isolation. State sector employers include: Government agencies, crown entities eg Kāinga Ora, ACC .
The following employers can access the COVID-19 Leave Payment:
• Early Childcare Centres
• Non-government Organisations
• Tertiary Education Institutions such as
Applying for either payment is easy
You apply online for either the COVID-19 Wage Subsidy or COVID-19 Leave Payment at www.workandincome.govt.nz/covid19support
When you apply you will need to give us:
• your IRD number
• your business name
• business address
• the names of your employees
• your employee IRD numbers
• contact details for your business and your employees.
We will be processing and approving applications as quickly as we can. We are aiming to make payments five working days after we have all the information we need from you – but this will depend on the volume of applications received.
Audits and reviews – you will need to declare you meet the criteria for payment as part of your application. All payments will be subject to audits and reviews.
Other support for employers
There is a range of support available for businesses. Here are some useful links:
• Ministry of Social Development (MSD): workandincome.govt.nz/employers/redundancy-support
• Ministry of Business, Innovation and Employment (MBIE): https://www.employment.govt.nz/about/news-and-updates/workplace-response-coronavirus-covid-19/
• Ministry of Health: www.health.govt.nz/our-work/diseases-and-conditions/covid-19-novel-coronavirus
Disclaimer: Please note that the content provided in this article is intended as an overview and as general information only. While care is taken to ensure accuracy and reliability, the information provided is subject to continuous change and may not reflect current development or address your situation. Before making any decisions based on the information provided in this article, please use your discretion and seek independent guidance.
A full disclosure statement is available on request and free of charge.