COVID-19 Government Financial Aid Package
The Government has released its initial $12.1 billion relief package in an attempt to mitigate the worst economic impacts of COVID-19.
The key aspects of the scheme are set out below.
Twelve-week wage subsidy scheme
From 17 March (and for the next 12 weeks), 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. The subsidy is:
- NZ$585.80 per week for a full-time employee (20 hours or more), or
- NZ$350.00 per week for a part-time employee (less than 20 hours).
The payment is made as a lump sum for a period covering 12 weeks. The maximum amount any one employer can receive is NZ$150,000.
Employers must have suffered, or be projected to suffer, at least a 30% decline in revenue compared to last year for any month between January 2020 and June 2020. Applications can also be made on the basis of forecast revenue loss within the period of the scheme.
Key undertakings required from the employer are:
- On their best endeavours, they will continue to employ the affected employees at a minimum of 80% of their income (eg 4 out of 5 days of the week) for the duration of the subsidy period.
- Employers must also have taken active steps to mitigate the impact of COVID-19 (eg engaged with their bank/financial advisor) and signed a declaration form to that effect.
Applications for the subsidy can be made through the Work and Income website. The Ministry of Social Development (MSD) will aim to make first payments no later than five working days from when applications are received. Please follow the link below to access the Employer and/or Self Employed/Contractor applications.
Eight-week scheme for workers, contractors and self-employed taking COVID-19 leave
The COVID-19 leave payment scheme runs for the next eight weeks, providing financial support to businesses that have workers unable to work because they are in self-isolation, are sick with COVID-19, or caring for others with COVID-19. The scheme applies to employees, contractors and the self-employed.
The payments are:
- NZ$585.80 per week for full-time workers (more than 20 hours per week), and
- NZ$350 per week for part-time workers (20 hours a week or less).
The payment does not affect any paid leave entitlements that are owed and is available even if an employee is on paid leave for part of the period. It is not available to those who can work from home during the period of self-isolation and who can be paid normally by their employer.
Employers apply for the leave on behalf of any employee who is self-isolating or sick. Payments can be backdated to 17 March 2020. MSD pays employers, who will then be required to pass it on to affected employees. MSD will pay on a fortnightly basis once it receives an application.
Other key parameters of the scheme are:
- Eligibility is open to all employees legally working in New Zealand (through their employers), the self-employed and contractors.
- Eligibility will only be for workers who are not able to work from home.
- The entitlement is for:
- those who self-isolate in accordance with public health guidance and who register with Healthline
- those who are ill with COVID-19, and
- those who cannot work because they are caring for a dependent in either of these circumstances.
- Those who leave New Zealand to travel overseas from 16 March 2020 will not be eligible for this payment for self-isolation on their return.
- Workers taking sick leave before 17 March 2020 can only access the scheme for time spent on sick leave from 17 March 2020. It will not be accessible for those who have traveled overseas since 16 March 2020.
Income support measures for beneficiaries and superannuitants
Two permanent changes have been made to welfare payments:
- Main benefits will rise by NZ$25 per week. These changes will come into effect on 1 April 2020 and are permanent.
- 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 (which was previously set at a minimum of 20 hours a week for sole parents and 30 hours a week for couples with children).
In addition, the Winter Energy Payment paid to superannuitants and beneficiaries will double in 2020. This temporary measure begins on 1 May 2020 and will be NZ$40.91 per week (single people) and NZ$63.64 per week (couples or people with dependents).
Tax Components of the package
The relief package has also been used as an opportunity to tweak tax settings in a manner consistent with the Tax Working Group's proposals from last year, as well as implementing measures that businesses have been seeking for some time. Key tax components of the package are:
- Depreciation deductions for commercial and industrial buildings are being restored as of the 2021 year
- The threshold at which taxpayers become subject to provisional tax will increase from $2,500 to $5,000 as of the 2021 year
- The definition of low value assets will increase from $500 to $5,000 for the 2021 year before settling back to $1,000 from the 2022 year onward
- Inland Revenue will be given more discretion to remit use of money interest if taxpayers cannot pay their tax due to COVID-19
Inland Revenue have announced they will remit use of money interest for payments due on or after 14 February 2020 where payment was not made on time due to COVID-19. This could apply for up to two years.
The full impact of these proposals will not be seen for several months; however, it is hoped this will encourage investment by the commercial sector and also ensure microbusinesses do not face cashflow constraints.
What you should do now:
- Review your forecast cash flows for the next few months and in particular consider how much headroom you have if cash receipts fall. If you can foresee difficulties, start the conversation with your bank, your landlord and other stakeholders as appropriate, to put contingency plans in place. You may also need to review capital expenditure plans and make short term cost savings to help you through.
- Speak with your bank. In order to have access to the wage subsidy scheme, you need to have evidence of discussions with your bank. This is also sound commercial practice as it provides some room should economic conditions stay bad for longer than anticipated.
- Keep an eye on turnover. Again, in order to have access to the wage subsidy scheme, you need to have a 30% decline in revenue for any month between January and June compared with the same month in last year.
We can help you with cashflow forecasting, reviewing your position and communicating with your key stakeholders.
Below is a link to more information on the wage subsidy and leave payments.
Please don't hesitate to call us if you need us. In the meantime stay safe and well.