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John Cantin, our Co-Head of Tax Policy answers your questions on the Government's Support and Stimulus Response Package. Please note as further announcements are made over the coming days, we will update this page accordingly.

Last updated: 21 August 2020

Wage subsidy

1. What does making best efforts to retain employees and pay them a minimum of 80% of their normal income for the subsidised period mean?

We understand that this means that the business must be making their best endeavours to make up to the 80%, but if the business cannot subsequently do this (e.g. if creditors and suppliers require payment or debtors withhold payment) a reduction to the $585 payment may be permitted.

2. Who can access the wage subsidy scheme?

The scheme covers employers, contractors, sole traders, the self-employed, registered charities, incorporated societies, non-governmental organisations and post-settlement governance entities.

3. If my business runs through multiple companies (e.g. through a consolidated group), do the wage subsidy eligibility requirements apply to each individual company?

The best answer we have is that individual companies qualify but for more complex groups, a consolidated view can be taken. However, a consistent approach should be applied. If the consolidated view is taken of the revenue reduction for example (to ensure that all employees are covered), individual companies should not apply using only their revenue.

4. If, as an employer I am receiving the wage subsidy on behalf of an employee, do I have to pay GST on the subsidy and does the employee need to pay tax on the wage subsidy?

An Order in Council has confirmed that the subsidy is exempt from GST.

Inland Revenue has advised:

  • The wage subsidy is taxable to the employee as part of their normal salary and wages. 
  • The wage subsidy is not taxable to the employer but there is no deduction when the employer pays the employee’s wages.

5. Will Work and Income New Zealand / Ministry of Social Development audit the claims?

Government and officials have advised that the scheme is a high trust model. This means there is little front-end checking before payments are made. However, wage subsidy claims are subject to a verification programme and repayment may be required if MSD considers the eligibility criteria are not met. Accordingly, you should be prepared to respond to inquiries. The key areas that you should document are:

  • Why you considered the 40% reduction had been met when you made the application, especially if you forecast a revenue drop which does not turn out to be the case;
  • Steps you took to mitigate the impact of COVID-19 (talking to the bank, insurer, suppliers, landlord, customers, a relevant industry association, drawing on cash reserves, activating your business continuity plan);
  • Why you considered the commitment to maintaining 80% of normal income for employees was valid;
  • Documents to show that at least the subsidy has been passed on if you were unable to maintain the 80% payment.

Other areas of potential audit will include receiving the consent of employees and compliance with existing employment agreements.

For comprehensive information on your obligations in applying for the wage subsidy, please see here to link to the obligations as set out on the WINZ website.

6. Do I need employee consent before making an application?

The Privacy Commissioner has advised that consent is unnecessary to disclose employee information to public sector agencies due to a national emergency being declared. However, MSD has not yet updated its website for this.

Despite consent not being required while there is a national emergency, we recommend sending an email  to employees advising them of the application and of the personal information that will be disclosed to MSD (and potentially other agencies) and that they are able to request access to their personal information under the Privacy Act.

7. Do I need to deduct PAYE and KiwiSaver from wage subsidy payments to employees?

Yes, payments to employees remain subject to PAYE, KiwiSaver and other relevant deductions.

8. What information do I need to complete an application?

The application process is relatively straightforward.  It requires:

  • Your business bank account, IRD number, New Zealand Business Number (NZBN), and contact details;
  • Your employees’ names, dates of birth, IRD numbers and employment types (i.e. more or less than 20 hours of work per week); and
  • Consent that the above is provided as part of the application (refer to our Q&A on consent);
  • To make a declaration affirming the legitimacy of your application;
  • Consent to MSD publishing information about your business and the subsidy provided to you on a publicly accessible register.

Leave payments (ceased 4:00pm on 27 March 2020)

9. With the shift to Alert 4 and the requirement that all employees work remotely/businesses close, will the leave subsidy apply to all employees who are unable to work from home during the period of that alert level applying?

The effect of Alert 4 applying from 11:59pm on Wednesday 25 March 2020, is uncertain. The leave subsidy criteria include a requirement to register with the Ministry of Health for those self-isolating and unable to work from home. It is unclear whether employees will be required to register or whether they will be treated as such. However, we understand that claims were being accepted until the announcement that the leave subsidy scheme ceased.

10. Is the leave payment subject to income tax or GST?

An Order in Council has confirmed that the subsidy is exempt from GST.

Inland Revenue has advised:

  • The wage subsidy is taxable to the employee as part of their normal salary and wages. 
  • The wage subsidy is not taxable to the employer but there is no deduction when the employer pays the employee’s wages.

General tax questions

11. If I am having trouble with tax payments, what assistance is available?

Instalment arrangements can be made through MyIR or through agreement with Inland Revenue’s debt recovery team. Further, Inland Revenue may write off core tax if the taxpayer can demonstrate serious hardship.   

On 25 March, Inland Revenue’s media release advised they would waive late payment penalties and interest. Inland Revenue has released further guidance outlining the eligibility requirements for remittance of penalties and interest:

  • The taxpayer has tax that is due on or after 14 February 2020;
  • The taxpayer can’t physically or financially pay tax on time because of significant adverse effects of COVID-19 (documentation should be maintained to prove this);
  • The taxpayer has contacted Inland Revenue as soon as practicable to let them know of the late payment and request relief (i.e. an instalment arrangement);
  • The core tax (being the whole amount less agreed write-offs, if any) has been paid (i.e. UOMI will continue to accrue on the unpaid balance until all the tax has been paid).

If you can pay, you should. Further, if tax will be paid late or not at all, contact Inland Revenue as soon as possible to make arrangements. We can provide assistance with this.

12. Inland Revenue can amend your return for a period of four years from the 31 March following the filing date. What is the position if I need to file my 2019 income tax return after 31 March 2020 due to COVID-19?

Inland Revenue has confirmed that, using her care and management power, the Commissioner will close any reviews or other compliance activity at 31 March 2024 if the return is filed before 31 May 2020. She has provided three conditions on that, the return cannot be:

  • Subject to a dispute commenced by NOPA issued by 1 January 2023; and
  • Involving alleged tax avoidance activity;  or
  • Having tax in dispute of greater than $200 million.