Covid-19 Business SUpport is provided but the Government is constantly changing, it can be hard to know what you are and aren’t eligible for.
Catch up with the detail below, including changes to resurgence support, wage subsidy payments and working-from-home (WFH) costs and reimbursements.
Let us know if you’re worried about not being able to pay your tax on time, if your cash flow is dangerously low, or if you need access to capital. And if you’ve taken advantage of tax relief or business support measures, make sure your records are in good shape to support your tax return.
- Consultancy support – Businesses had access to free professional consultancy services through Regional Business Partners (RBP) with tailored specialist support for business continuity planning, finance and cash flow management, HR and staffing issues. COVID-19 Business Advisory Funding has been fully allocated. The RBP can advise on what other support is available.
- Debt hibernation – The business debt hibernation scheme helps businesses manage their existing debts until they can start trading normally again. It allows qualifying businesses to defer debt repayments by up to 7 months. The scheme has been extended to 31 October 2021.
- Depreciation – From 2020/21 income year onwards, depreciation is allowable for commercial and industrial buildings. For a limited period, the low-value asset threshold for depreciation increased from $500 to $5,000. For items that fall below the threshold, the depreciation loss is the item’s cost. Above the threshold, items must be depreciated using the diminishing value or straight-line method. The increase allowed the immediate expensing of assets that cost less than $5,000 and that was purchased between 17 March 2020 and 16 March 2021. For assets purchased on or after 17 March 2021, the threshold permanently increases from $500 to $1,000.
- Leave support – The Leave Support Scheme (LSS) is available for employers, including the self-employed, to help pay employees who need to self-isolate and can’t work from home. It provides a 2-week lump sum payment of either $585 per week for full-time workers, or $350 per week for part-time workers. A short-term absence payment was added to cover eligible workers (including self-employed) needing to stay at home while awaiting COVID-19 test results. It provides a one-off (once per 30 days) $350 payment. It also covers parents, caregivers, household members or secondary contacts of the eligible worker awaiting test results. You cannot get more than one COVID-19 payment for the same employee at the same time from Work and Income.
- Loan products – The Small Business Cashflow Loan Scheme grants eligible businesses an interest-free loan (up to a capped maximum) if they repay it within two years. The scheme has been extended, broadening eligibility, and extending its availability to 31 December 2023. Businesses or organisations that have fully repaid their loan before the end of 2023 can re-borrow.
- Loss carry-back – A temporary tax loss carry-back scheme, limited to a 3-year window, means losses in the 2020- or 2021 income years can be used to offset profits made the year immediately before. If you want to use this option, you need to be eligible and let Inland Revenue know you want to elect into the scheme. If you’re expecting a tax loss for the year ended 31 March 2021, you might be eligible for a refund of the provisional tax previously paid for the 2020 year. There has been discussion about introducing a permanent scheme but there’s no further news on this yet.
- Loss continuity rules – These allow tax losses to be carried forward. Up till now, if a company had more than a 51% change in ownership it couldn’t keep its tax losses. As raising capital may result in a change to the existing shareholder structure, companies wanting help need the flexibility to access capital and to carry losses forward to offset income when they return to profit. Proposed new rules are expected to apply for 2020/21 and later income years with a ‘same or similar business’ test, meaning the business must continue in the same or a similar way it did before ownership changed. Inland Revenue will be alerted to prevent loss trading.
- Provisional tax – The RIT threshold for provisional tax increased from $2,500 to $5,000 from the 2020/21 tax year. This allows small businesses to retain cash for longer and reduces the number of provisional tax taxpayers. If you are a building owner, you can adjust provisional tax payments in anticipation of additional deductions available as depreciation for commercial and industrial buildings was reintroduced from the 2020/21 income year. If your business is affected by COVID-19 and you need to re-estimate your provisional tax as your income falls short of the estimate and the provisional tax has been overpaid, it may be possible to arrange early refunds.
- Research and Development (R&D) – Start-up companies can cash out their tax losses arising from eligible R&D expenditure and avoid carrying the losses through to the next income year. The rules around R&D expenditure are detailed and eligible R&D expenditure requires approval from Inland Revenue. If you want to claim under these rules, you need to look at this sooner rather than later and have good records of such expenditure.
- Resurgence support – The resurgence support payment (RSP) is available to help businesses directly affected when there is a move to Alert Level 2 or above for a week or more, especially relevant to sectors like hospitality and events, which face particular disruption as Alert Levels change. Businesses can apply to receive the lesser of the:
- $1,500 plus $400 per fulltime-equivalent (FTE) employee, up to a maximum of 50 FTEs, or
- Four times (4x) the actual revenue drop experienced by the applicant
The maximum payment is $21,500. A sole trader can receive a payment of up to $1,900. Eligible businesses must have experienced at least a 30% drop in revenue or capital-raising ability over a 7-day period after the increased alert level. Where a business is one of a group of commonly owned businesses, that drop also needs to be present across the commonly owned group as a whole.
Eligible businesses must have been in business for at least 6 months to apply. New eligibility criteria were introduced on 9 September 2021 and organisations that have been in operation for at least 1 month before the Alert Level increase on 17 August 2021 may now be eligible if they meet all the other eligibility criteria. There is provision to apply for businesses still in a start-up phase (‘pre-revenue businesses’), that have taken active steps towards being market-ready while not yet trading.
Applications are still open for the RSP for the alert level increase announced on 17 August 2021, so long as the conditions that trigger the RSP apply.
- Short-term absence payment – See Leave support.
- Tax deadlines – Inland Revenue has the discretion to grant extensions to filing dates for some income tax returns. Extensions can’t be granted for GST and PAYE returns, but late filing penalties may be remitted. Under limited circumstances, late payment penalties may also be remitted
- Tax debt – If you are unable to pay tax by the due date, Inland Revenue has the discretion to write off penalties and interest. Contact them (or us) to indicate when tax can be paid, or request instalment arrangements. You may be eligible for a UOMI write-off
- Wage subsidy – The wage subsidy scheme (WSS) ensures employers can keep paying their employees, and workers continue to receive income and stay connected to their employer, even if unable to work their normal hours. The wage subsidy scheme will be in place if there is an escalation to Alert Levels 3 or 4 anywhere in New Zealand, for 7 days or more
- Wage subsidy August 2021 – Eligible employers and self-employed anywhere in the country may apply for the WSS if they expect a loss of 40% of revenue because of the alert level increase announced on 17 August. Businesses will be eligible for $600 per week per full-time equivalent employee and $359 per week per part-time employee, paid as a 2-week lump sum. The scheme now requires businesses to reapply for each fortnightly payment, unlike the 2020 scheme. Applications for the 4th August 2021 wage subsidy close at 11.59 pm on Thursday, 14th October 2021
- Wage subsidy tax implications – The wage subsidy is considered excluded income to businesses and is also GST exempt. When passed on as wages, businesses don’t get a deduction for income tax purposes. Keep comprehensive records of wage subsidies received and passed on to employees, as well as any subsidies your business subsequently repaid, to be prepared for any adjustments required in your tax return
- Working from home (WFH) costs and reimbursements – The timeframe for tax-exempt reimbursement payments made by employers to employees for WFH now extends to 31 March 2023. Make sure your records have enough detail to show:
- What period do these payments relate to
- Payments comply with requirements for qualifying payments to be treated as exempt income
Where some payments are exempt and others taxable and where some portions of payment are exempt but others are taxable note that:
- WFH payments claimed between 17 March 2020 and 31 March 2023 allow an additional $15 per week, per employee, to be exempt income for other WFH expenditures, recognising potential increases in household costs and depreciation loss on existing depreciable assets (i.e. not in relation to telecommunications costs)
- For telecommunications devices/plans, staff reimbursements are exempt income up to $5 per week. If reimbursement is above this amount, the exempt amount is 25% if the device/plan is used partly, 75% if used mainly, or 100% if used exclusively for employment purposes
- WFH payments for telecommunications devices/plans claimed from 1 October 2021 to 31 March 2023 allow either a $20/week reimbursement, per employee, or if the device is used mainly for work 75% of telecommunications costs plus $15, or if partly for work 25% of telecommunications costs plus $15 to be exempt income for other WFH expenditure
- Payments may be tax-exempt for reimbursing the acquisition of furniture or equipment when WFH to reimburse depreciation on the item. The payment will typically be for the cost of the asset and the payment will still be deductible to the employer. Note the $5,000 low-value asset threshold applied between 17 March 2020 to 17 March 2021 applies here
Write-offs – Ordinarily, a bad debt must be written off by the end of the tax year. For the 2020 year, the timeframe to write off bad debt and be able to claim a deduction for that income year was extended to 30 June 2020. This is subject to conditions. Make sure your records for the 2020 and 2021 years reflect any write-offs for bad debts for the relevant period and have sufficient detail to justify the write-off.
