This article was published on 17 March 2020 and represents the legal position on this date. Due to ongoing developments, this guidance may no longer represent the correct position as of today. If you would like assistance on the below matter please get in touch with the contacts listed or your usual Bell Gully adviser.
The government announced today a significant economic response package to combat the impact of COVID-19. It is larger than New Zealand's response to the GFC and larger on a per capita basis than comparable responses so far in Australia, the UK and the US.
The package is worth NZ$12.1 billion with the majority of that – NZ$8.7 billion – targeted at supporting businesses.
The package includes NZ$5.1 billion of wage subsidies for affected businesses available from today, a NZ$2.8 billion income support package and NZ$600 million for aviation support.
Included in the NZ$12.1 billion COVID-19 response package are a number of employment-related subsidies and entitlements.
These employment-related changes apply equally to employees, contractors and self-employed/sole-traders. In other words, where the government's factsheets and guidance refer to employers and employees, this should be read more broadly as businesses and workers. The value of these entitlements depends on whether a worker is full-time (i.e. working 20 or more hours per week) or part-time (less than 20 hours per week).
A total of NZ$2.8 billion is devoted to tax reform and relief.
To be eligible for a wage subsidy, the employer must have suffered (or be projected to suffer) a 30% decline in revenue between January 2020 and the end of June 2020, compared to the same month in 2019.
An eligible employer (which includes self-employed or sole-traders) will receive:
The wage subsidy is paid to the employer in one lump sum for a 12-week period, on the condition that:
The employer undertakes that they will continue to employ affected employees at a minimum of 80% of their income for the duration of the 12-week subsidy period. This is the equivalent of keeping people working four days per week out of the ordinary five.
The employer has taken active steps to mitigate the impact of COVID-19. A declaration must be signed by the employer to this effect.
For the next eight weeks, “COVID-19 leave" payments are now available to workers who are unable to work due to being ill with COVID-19, in registered self-isolation per the public health guidance, or caring for a dependent who falls in either category.
COVID-19 leave sits outside existing paid leave entitlements, and is available even if a worker is already on paid leave for part of the relevant period. However, an employer is not required to pay an employee for more than they would have received, had they worked.
Employers are to apply to the Ministry for Social Development for COVID-19 leave payments on behalf of affected workers. These payments are made by MSD to employers, who are then required to pass it on to affected workers. Payments are set at the same value as wage subsidies above, being:
COVID-19 leave is available from 17 March 2020.
COVID-19 leave is not available if a worker is able to work from home, or for those who have left New Zealand to travel overseas from 16 March 2020.
NZ$100 million has been allocated to support worker redeployment, with the Tairawhiti region being the first region to receive assistance. Further details on this are due on Wednesday 18 March.
Tax reform and relief
In a somewhat surprising move in the context of a COVID-19 relief package, tax depreciation on commercial and industrial buildings will be reinstated. This will benefit accommodation suppliers affected by the pandemic, but its implications will be far broader than that. The cost of the reintroduction is estimated at NZ$2.1 billion to 2023/24.
Depreciation on buildings with an estimated useful life of greater than 50 years was reduced to 0% with effect from 1 April 2011. Prior to that, depreciation on such buildings had allowed at 2% per annum.
At the time, the reduction to 0% was justified on the basis that New Zealand building price data suggested that such buildings had been increasing in value. That analysis was questionable, and the change to 0% was unpopular. It created distortions in investment preferences. A cynical view was that it was a simple revenue collection measure that might also have the effect of discouraging investment in rental accommodation, relieving some pressure on housing affordability.
The move to reinstate it through this package is principled in terms of tax policy and will no doubt be welcomed by the business community.
Other key tax changes are that:
The provisional tax threshold will also lift from April 1 from NZ$2,500 to NZ$5,000 allowing an estimated 95,000 businesses to experience some measure of cash flow relief.
The IRD will also be given powers to waive interest on late payments of tax for those who have had their ability to pay tax on time affected by the outbreak.
If you have any questions about the matters raised in this article please get in touch with the contacts listed, or your usual Bell Gully adviser.
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This publication is necessarily brief and general in nature. You should seek professional advice before taking any action in relation to the matters dealt with in this publication.