COVID-19 assistance update
March 27, 2020
We are now living with our requirement to stay at home and restrict movement around and about, under the Alert Level four. It is timely to provide an update on measures that have been put in place or are being considered by the Government to help businesses and employees get through this period, and minimise losses and business failures. This is an update from our earlier summary posted last week.
We hope by now as either as an employer, partner in a partnership, contractor, sole trader or otherwise in business, that you have applied for the subsidy. Even better if you have been paid. Although payments are generally received quickly, the official position is two to seven working days. There is an 0800 40 80 40 number to contact if you have any concerns or haven’t received payment of your application. As you can imagine, the number is quite busy so you may have to keep trying.
The scheme has been extended to remove the cap of $150,000 per business. Also, if you have made application but missed someone who is eligible, you can re-apply using your entity details and only listing the details of the employees not originally recorded. We also understand that if someone is employed in two jobs, both employers can apply on their behalf, as long as each commits to continue to pay at least 80% of their normal earnings for each subsidy. Please be careful with this and ensure that you pick the correct part time or full time status.
For employees, the funds received are non-taxable income. Therefore, salary and wages paid from those funds are non-deductible expenses. To aid in calculating these amounts, most payroll providers have set up codes to enable funds associated with the subsidy to be recorded, while not affecting the payments to the recipients. This will lead to permanent differences in revenues and expenses recorded on a financial statement and on a tax return, and for many new chart of account codes will be needed to record the transactions. Receipt of the subsidy has no GST and wages are always exempt from GST.
Clarification is pending from the Government on matters for situations such as when the $350 subsidy has been received for a part time worker but their ordinary earnings are less than that total. Other questions are also being addressed by the Government. We are also anticipating clarification on the taxation of the subsidy for sole traders, partners in partnership and contractors, though we imagine it will be taxable to these recipients.
The requirement of the subsidy for employers is to commit to continue to pay employees at least 80% of their normal earnings over the 12 weeks. As normal earnings do not include annual leave or sick pay, employees are not required to use these leave entitlements to continue to be paid. Suggestions have been made that employers and employees should engage with each other about using the leave and sick entitlements to top up earnings beyond the 80% to full earnings, but there is no requirement on employers to do this.
If you have questions about your particular situation, including eligibility, please contact us.
Government Lending Guarantee
To assist small businesses obtain loans from banks, the Government is providing a scheme which will see it take 80% of the risk of a new loan, through providing a guarantee on the lending. As a business applies to a bank for funding under this scheme, the bank’s risk of default is lessened as it is assured of at least 80% recovery under the guarantee provided by the Government. Businesses with turnover of between $250,000 and $80 million will be eligible for loans of up to $500,000 for a term of up to three years.
The loans are intended to help businesses get through and are therefore not able to be made for capital improvements, investment, expansion and other similar purposes. The banks, not the Government, will make decisions on whether the businesses should be eligible for the loans, so if funds are needed, you should contact your bank. As required, contact us if additional financial information is required by the bank to consider your lending application.
The Government has announced measures to protect the residential rental market from eviction and rent rises. For the next six months, rental increases are prohibited. For the next three months, lease terminations criteria have tightened and include the extension to 60 days of non-payment of rents before landlords are able to consider eviction. The Government has urged tenants and landlords to engage with each other and work together to maintain rental agreements and assist with the effectiveness of social isolation.
For commercial properties, rent relief or rent restrictions have not been provided for. At this stage, the Government, through the Finance Minister has urged landlords to speak to their tenants to work together and be flexible considering that many businesses will be forced to be shut and not have the income stream to support on-going lease payments. We are aware of certain commercial landlords who have been, so far, completely inflexible, and hope that this will change in due time. We urge you to review your leases as some leases contain a “No access in Emergency” clause which will make it easier to negotiate with the landlord.
Mortgage holiday for homeowners
On Tuesday, it was announced that a six-month mortgage holiday from making mortgage payments is available to homeowners whose incomes have been affected by COVID-19. This is intended to relieve homeowners whose finances have been reduced and limited during the shut-down, and are worried about foreclosure on their home.
With this relief, it is important to keep in mind that it only delays payment for six months. It not only doesn’t reduce the total indebtedness but rather increases it as interest will continue to accumulate during the holiday (even though interest rates are currently low). An interest only approach may be more prudent if that works for you. With this initiative as well as others, it is important to speak to your bank.
Other measures in place or still being discussed
As the situation is evolving rapidly, the Government and financial community are still considering a number of other measures. Some measures already introduced by Banks include a waiver on contactless debit card transaction fees on Paywave for small business customers until 30 June. Additional overdraft lending and reductions in certain interest rates are also being made available. Items still being discussed include, the Institute of Directors has petitioned to the Government for a six month interim relief order to directors for personal liability for trading while their business is insolvent. This would apply to many situations with businesses ceasing trading but continue to borrow, pay wages and try to maintain in operation. As changes are announced, we will provide another update.
End of financial year
After this first week of staying at home, the country will move from the current financial year ending 31 March 2020, to the new financial year. For many, GST returns for 31 March will be due for filing and payment by 7 May. In previous releases, it has been stated that IRD has greater scope to remit late payment penalties and now also authority to remit interest from late payments caused by financial difficulties arising from COVID-19. This applies only to payments made due on or after 14 February 2020. However the Government and IRD are still expecting taxpayers to file their returns on time, so they are able to quantify the anticipated tax take and also not create automatic default assessments of tax that can provide widely exaggerated results. We will be proceeding on schedule to attend to your taxation on contact with you, as we are able to work from home. As we are in this together, we expect to be able to work with you as well on payment arrangements for our time and efforts to assist with your taxation and financial needs, and again flexibility is in order.
As the four week stay at home period is scheduled to end at 11:59pm on 23 April, we can hope for a return to normalcy. We all have our views on what may happen, but we hope that our communication with you, via these emails and directly, either initiated by us or received from you, helps get through this situation.
As we’ve said, these are strange times and we want to help as much as possible to get through safe and healthy until the virus is under control, one way or another.
Best wishes, the team at MTM.
Contact us today for your no-obligation consultation.