Covid – 19 – Economic Package Announced

Business Cashflow and Tax Measures

(1)  Reintroducing depreciation on commercial and industrial buildings

Overview: Depreciation deductions will be reintroduced for new and existing industrial and commercial buildings, including hotels and motels. This will help support businesses with cashflow in the near-term and assist with the broader economic recovery by stimulating business investment in new and existing buildings.

Reinstating building depreciation will support longer-term economic productivity and macroeconomic objectives by:

• encouraging investment in business premises and decreasing the cost of such premises over time;

• improving business confidence; and

• enabling the capital cost of seismic strengthening of buildings to be depreciated.

Payments able to be applied for, and received from: A Bill containing this measure will be introduced shortly. The law will allow owners of commercial and industrial buildings (including hotels and motels) to start reducing their provisional tax payments for the 2020-21 income year immediately. There is no application process as the increased deduction will be available as part of normal tax filing processes.

(2) Immediate deductions for low value assets

Overview: Taxpayers will be able to deduct the full cost of more low-value assets in the year they purchased them, rather than having to spread the cost over the life of the asset. Taxpayers are currently able to claim an immediate deduction for the purchase of assets that cost less than $500. This threshold will be further increased to allow the immediate expensing of assets that cost up to $5,000, for a year (2020-21 income year). The temporary increase (to $5,000) is designed to incentivise taxpayers to bring forward investments to encourage spending. The threshold is being permanently increased to $1,000 (from 2021-22 income year onwards). This will reduce compliance costs for businesses and encourage businesses to continue investing.

An increase in the threshold for writing off low value assets will reduce compliance costs for businesses. It will also have the side-benefit of stimulating business purchases (although overall impacts on demand are likely to be small).

Payments able to be applied for, and received from: This will take effect for expenditure made on or after 1 April 2020 for most taxpayers.

(3)  Fewer small businesses having to pay provisional tax

Overview: Increasing the threshold for having to pay provisional tax from $2,500 to $5,000 allows more small taxpayers to delay paying their taxes. This means they have until 7th April (7 February if there is no extension of time for filing) following the year they file to pay their tax, instead of having to pay in instalments throughout the year. This lowers compliance costs for smaller taxpayers and allows them to retain cash for longer.

Payments able to be applied for, and received from: Taxpayers that would have otherwise been paying provisional tax in the 2020-21 tax year will now be able to pay their tax on 7th February 2022 – providing immediate cashflow benefits.

(4) Writing off interest on some late payment of tax

Overview: The Commissioner of Inland Revenue will be given the power to waive interest on late tax payments for taxpayers who have had their ability to pay their tax on time significantly adversely affected by the COVID-19 outbreak. Use of Money Interest (UOMI) is routinely charged on late tax payments.

Payments able to be applied for, and received from: The relief will apply to interest on all tax payments (including provisional, PAYE, and GST) due on or after 14 February 2020.

Further details: The Commissioner will have this power for two years.

Wage Subsidy Scheme

Overview: Wage subsidies will be available for all employers that are significantly impacted by COVID-19 and are struggling to retain employees as a result. The scheme will be open to sole traders and the self-employed as well as firms.

Amount of support: $585.80 per week for a full time employee (20 hrs or more) or $350.00 per week for a part time employee (less than 20 hrs). The payment will be made as a lump sum for a period covering 12 weeks. This means employers will receive a payment of $7,029.60 for a full time employee and $4,200 for a part time employee. The maximum amount any one employer can receive is $150,000.

Scale of disruption: Employers must have suffered, or are projected to suffer at least a 30% decline in revenue compared to last year for any month between January 2020 and the end of the scheme in June 2020. Applications can also be made on the basis of forecast revenue loss within the period of the scheme.

Undertakings from the Employer: Some of the key undertakings are:

• Employers will need to declare that, on their best endeavours, they will continue to employ the affected employees at a minimum of 80% of their income for the duration of the subsidy period. This is the equivalent of keeping people working 4 out of 5 days of the week.

• Employers must also have taken active steps to mitigate the impact of COVID-19 (eg. engaged with their bank/financial advisor) and sign a declaration form to that effect.

Employers can apply to MSD for the subsidy: Employers can apply from today. Applications can be made through an online portal on the Work and Income website. MSD will aim to make first payments no later than five working days from when applications are received.

Duration of the scheme: Applications can be made from today (17 March) for the next 12 weeks

Example:Tourism operator: A tourism operator in Queenstown, with 20 permanent part time employees and 40 casuals, is affected by the decrease in international visitors. Their income is down 50% from the same period last year, forward bookings over the next two months are down 30%, and the casual workforce has already been released. The Employer receives $84,000 as a lump sum, and uses the subsidy to keep paying all part time staff their existing (current) income over the next 12 weeks.

More information on the wage subsidy scheme, including how to apply, and other support for businesses can be found at Work and Income

Overview: Workers and businesses have responsibilities to prevent the spread of COVID-19. The purpose of the COVID-19 leave and self-isolation scheme is to support workers financially to self-isolate, or while ill with COVID-19, where this is required so that all businesses and workers can do the right thing.

The COVID-19 leave payment scheme will provide support (through employers/to sole traders and the self-employed) for those people unable to work who are in self-isolation, are sick with COVID-19, or caring for others with COVID-19. The payments will be $585.80 per week for full time and $350 per week for part time workers.

The payment does not affect any paid leave entitlements that are owed and is available even if an employee is on paid leave for part of the period. It is not available to those who can work from home during the period of self-isolation, and who can be paid normally by their employer.

Payments able to be applied for and received from: Employers will apply for the leave on behalf of any employee who is self-isolating or sick. Payments can be backdated to 17 March, 2020.

Further details: Affected full time workers (those who work more than 20 hours per week) will receive $585.80 per week, and part time workers (20 hours or less) $350 per week – the same amount as under the wage subsidy scheme. The payment is made by MSD to employers, who will then be required to pass it on to the affected employee. MSD will pay on a fortnightly basis once it receives an application.

Other key parameters of the scheme are:

• Eligibility is open to all employees legally working in New Zealand (through their employers), the self-employed, and contractors.

• Eligibility will only be for workers who are not able to work from home.

• The entitlement is for:

• Those who self-isolate in accordance with public health guidance and who register with Healthline;

• Those who are ill with COVID-19;

• Those who cannot work because they are caring for a dependent in either of these circumstances.

Those who leave New Zealand to travel overseas from 16 March, 2020 will not be eligible for this payment for self-isolation on their return.

Workers taking sick leave before 17 March, 2020 can only access the scheme for time spent on sick leave from 17 March, 2020. It will not be accessible for those who have travelled overseas since 16 March, 2020.

Example

John Smith, a full-time plumber working for EasyFlow Pipes Ltd, arrived back from a three-week holiday in Sydney on Tuesday, March 17. Despite feeling well, the Government's self-isolation restrictions meant John had to self-isolate for 14 days.

John had already used his mandatory sick days earlier this year and his employer was not able to cover his wage for 14 days while he was off work. His employer applied to MSD for the sick leave support for John and received a lump sum payment of $1,171.60 to pass on to John for the two weeks he is in self isolation.

More information on the sick leave scheme, including how to apply, and other support for businesses can be found at www.govt.nz/coronavirus, and www.business.govt.nz.

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Please note: The above E-newsletter notes and the related articles on our website are of a general nature and therefore we urge clients who may be affected by these changes to contact us to discuss your specific circumstances before making any changes or drawing any conclusions.

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