Backbone Chartered Accountants Auckland - Newton

As the global impact of COVID-19 on businesses and individuals continues to unfold, , the Government has announced a $12.1 billion (which represents 4.0% of New Zealand’s GDP) fiscal stimulus package to help address these challenges.  This package contains a number of measures to help elevate the impacts on public health, social and the economy.  

Wage Subsidy

This subsidy is to support your business if you're impacted by COVID and face laying off staff or reducing their hours because of COVID-19. The subsidy will be available to businesses or sectors that can demonstrate a decline in monthly revenue of 30% and covers the period from January to June 2020. From today, employers can access the subsidy by way of an online application to the Ministry of Social Development (MSD).

Who can get it:

If you're an employer, contractor, sole trader or self-employed, you may qualify to get the COVID-19 wage subsidy.

To qualify:

• Your business must be registered and operating 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. It is crucial that prior to any application for the subsidy that your accounting is up to date for the month.
• 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.

How much you can get:

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.

Leave and self-isolation support

A further $126 million of funding will be provided for COVID-19 leave and self-isolation support. This payment will be available to employees and the self-employed in self-isolation or otherwise unable to work and be paid normally due to COVID-19. The payments will be $585.80 per week for full time and $350 per week for part-time workers and does not affect any paid leave entitlements. The payments may be backdated to 17 March 2020. Again, employers will be required to apply online for the payment from MSD and can do so from today.

Also in yesterday's Government announcement, there were a number of welcome tax changes.

Overview of tax changes

• 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 has announced they will remit use of money interest for payments due on or after 14 February 2020 where the 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 small businesses do not face cashflow constraints.

This is actually something else.  As you are no doubt aware, there are tough times ahead financially for NZ and the whole world.  Many, if not most businesses and individuals in NZ are going to experience a downturn, as there are anticipated demand and supply shocks ahead.  If you’re expecting this for your business it is going to be really important to be proactive in making any changes you can in business structures and financing, and we encourage you to start thinking about these issues.  Finance providers are going to want evidence of good management and, based on the last downturn, may have increased reporting frequency requirements and updated cash flow forecasts.  So what to do now.

1. Review at your business 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.
2. Speak to 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.
3. 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 last year.

Like most businesses and individuals Backbone Accounting has implemented excellent hygiene and contact management processes to minimise risk of infection for ourselves and anyone we come in contact with.  Furthermore, we have a full contingency for further restrictions and will be operating as usual throughout, with accountants able to work from home.  If you’d like more information about these areas please let us know.

As always if you have any questions, comments or concerns please feel free to contact any of us here at Backbone Accounting. The Minister of Finance urged everyone to look after themselves, look after their families and look after our elderly. We agree with these sentiments and are doing what is necessary to keep our staff and clients safe.

New Zealand has been through challenges over the years and we have come through the other side. This is but another one of those challenges.