Following on from our previous three publications of Covid-19 Advisory Information this week, we are continuing to keep you informed of developments as much as possible.
We hope that you find the information useful in dealing with the necessary changes that are upon us.
If you have any questions regarding the information in this Advisory, or any of our previous ones, we ask that you contact us as soon as possible and we can assist you.
Hopefully tomorrow we will be able to provide information regarding the government and banking industries policies on assisting with loan and mortgage arrangements.
The Strawbridge Team
- Tax Changes
- FAQS 2 – More clarification on your issues
- Working From Home
- Wellbeing and Xero Assistance Programme (XAP)
1. Tax Changes
Yesterday a bill was passed under urgency to implement the tax (and a few social welfare) changes announced the prior week. While these changes are welcomed, they are minor in the scheme of things.
However, before we get to that, there was a subtle change yesterday that is potentially going to be more relevant to you all right now.
Change in IR approach
More importantly for the short-term health of our businesses, Inland Revenue’s narrative has changed dramatically over the past few days. You may have seen stories in the media yesterday that there is some form of relief coming. There is nothing official yet, but IRD’s website does now say:
“If your business is unable to pay its taxes on time due to the impact of COVID-19, we understand – you don’t need to contact us right now. Get in touch with us when you can, and we’ll write-off any penalties and interest. It would help if you continue to file however, as the information is used to make correct payments to people, and to help the Government continue to respond to what is happening in the economy.”
Of course, it is not a good idea to get behind on taxes, but it is a welcome relief that theInland Revenue have signalled a pragmatic approach to the fact that businesses arecash-flow strapped right now and tax is not a priority.
Please reach out to us to discuss your taxes at the earliest possible opportunity.
Coming back to the law that passed yesterday. The changes are:
• Reintroducing depreciation on “non-residential” buildings for the 2020-21 and later years. This applies to all non-residential buildings, not just buildings purchased after the date. The rate will be 2% DV or 1.5% SL. This change is likely to be permanent.
• Increasing the $500 low-value asset threshold temporarily to $5,000 (and then settling back to $1,000 permanently). The $5,000 threshold applies for assets purchased for a 1-year period beginning 17 March 2020. From 17 March 2021, the threshold drops back to $1,000.
• Permanently increasing the provisional tax threshold from $2,500 to $5,000 for the 2020-21 tax year.
• Bringing forward the previous tax-payer friendly changes made to the R&D credit scheme. These changes were to apply from the 2020-21 year but have been brought forward to the 2019-20 tax year.
• Allowing IR to remit use of money interest for taxpayers affected by COVID-19.This will apply to interest accruing on payment due on or after 14 February 2020 and will last for 24 Months (unless extended by an order in Council).
• Removing the hours test for the in-work tax credit.
• Ensuring GST does not apply to Wage Subsidy and Leave Payment amounts.
A temporary doubling of the winter energy payment for beneficiaries and superannuitants.
Of the above changes, the only one we will discuss in greater detail is the ability for Inland Revenue to remit use of money interest. Inland Revenue will release guidance on when this can occur, which can be found here.
This is a very welcome change. If you follow the link above, you will see that the Government/Inland Revenue has already softened up the criteria dramatically. 9 days ago, when this change was announced, the write-off could only occur once all other funding avenues had been exhausted. As the guidance now stands this only needs to be “explored”. Please note at the time of writing, the Inland Revenue guidance was not complete.FAQS 2 – More Clarification on your Issues
2. FAQS 2 – More Clarification on your Issues
Our first Wages Subsidy FAQ was very well received, so we decided to make a sequel.
Getting official guidance is tough as MSD and IRD are understandably overloaded, so therefore we have been largely left to piece through this ourselves. Therefore, we must stress that much of the content that follows is our opinion and that MSD or IRD as the case may be might not entirely agree. However, we are doing the best to comply with the spirit of the rules, so we hope they do!
a) More Wage Subsidy FAQs
Thankfully, a NZBN number is no longer a required field on the employer application form. This was an unnecessary hassle having to obtain a NZBN for partnerships.
Employee birthdates are also no longer compulsory. This saves a lot of time.
Since the $150k cap was removed, WINZ has introduced a new process for large employers to upload the employee data in a .CSV file. This is a good development, because trust me you would not want to be doing the standard form for a large number of employees.
Partnerships with working-partners qualify for the Wage Subsidy. Passive partners should not be included.
We have been using these two possible options for partnerships:
• File one application for the partnership with the working partners (and PAYE employees) as employees; or
• File working partners applications as self-employed applications.
WINZ are now saying that one partner applies as an employer and includes the other partners as employees. We suggest this is now redundant as a result of the NZBN number now being an optional field. We would recommend filing an employer application for the partnership.
We have fielded a large number of questions around share-holder employees.
Are shareholder-employees eligible?
WINZ have recently updated their FAQs to confirm that working-shareholders are eligible. Thankfully, it is consistent with the positions we have been taking.
How to file a claim for a shareholder-employee
The new WINZ guidance is that a shareholder-employee can be treated as an employee in the employer application. We have interchangeably been doing this or treating a shareholder-employee as self-employed.
What if a shareholder-employee has no shareholder- salary?
This does not matter for the Wage Subsidy. They either work in the business, or they don’t. Remember that shareholder-employees and shareholder-salaries are a tax fiction. Note that Leave Payment applications may be different – as they have a minimum wage requirement.
Contractors are responsible for their own applications as self-employed.
The guidance at the moment is that only one Wage Subsidy form can be completed per employer. Since we cannot get hold of WINZ at the moment, the best guidance we can give is to file another application and see what happens. Sorry, but that’s the best we have.
The scenario we are seeing most often is that it is the shareholder-employees who are missed off the application. We are processing these as self-employed applications in these circumstances.
Multiple businesses in one entity
This needs to be considered on a case by case basis, but where there are two unrelated businesses in the same entity, we believe that one business suffering (or is expected to suffer) a 30% turnover decline is sufficient.
This was run past WINZ shortly before things went mad after the Monday noon announcement.
Notifications of Subsidy Payments to Clients
We are now seeing that WINZ/MSD notifications are sporadic at best. We are getting text messages and/or emails confirming payment in a very small number of applications. Last week there seemed to be notifications for all applications when payment was made. This is now not consistently happening.
Processing times – Contacting WINZ
We are seeing some applications being paid out same day, and others are taking days. With the WINZ line overloaded and failing more often than not, often there is no feasible way to follow up on a claim at present. That being said, as of a few minutes ago we are aware that a person got through for the first time since midday Monday.
Only passing on the subsidy amount
We are aware of certain business associations telling their members it is OK to only pay the $585.80 subsidy amounts to employees (where the employment agreement allows).
We are also aware of unions and Labour MPs sending out comms to employees to dob in the above scenario.
Remember that a condition of the getting the Wage Subsidy is that you will use your best efforts to pay employees at 80% of their normal pay. If a subsidy was applied before the lockdown was announced, then it might arguably be OK to only pay the $585.80 amount for the lockdown period as you applied with the best intentions of paying 80%. If an employer has applied knowing they intend to only pay $585.80 (and that is less than 80% of normal pay), then there is a big problem!
This is still a problem. Casual employees are common in certain industries because the employer needs control over when they can work. For example, the work may be weather dependent. We suggest a practical approach, are they in effect a permanent employee, and do you intend to pay them 80% of normal for the subsidy period. The second problem is – what is normal.
Leave subsidy for locked down employees
Now we are all on “house arrest”, does everyone who can’t work from home qualify for a Leave Payment. We have no new information here, but we note that the Government has not allocated more funding, and the WINZ guidance has not changed. We suggest that this is limited to those required to self-isolate due to travel, age, or being immune compromised. There are few other scenarios we might be comfortable claiming for.
b) Tax treatment FAQs
There is a lot of confusion about the tax treatments of subsidies. Social media is full of comments people are sharing about what their accountant supposedly told them that are entirely wrong.
Here is a summary of the actual tax positions:
As a result of a law change, there is no GST on Wage Subsidy or Leave Payments in any circumstances.
Income tax – subsidy paid to employer
The subsidy is not taxable in the hands of the employer. Also, the corresponding deduction is not available, making it tax neutral.
Income tax – subsidy paid to sole trader, shareholder employee, partner etc
Where the amount goes directly to a person responsible for their own taxes, the amount is taxable income.
Employer paying employees
The subsidy received is independent of the amount paid to the employee. Think of it as the source of the funds. Amounts being paid out to employees are taxable as always.
Shareholder employee wage subsidy goes to the company
There are two potential options here:
• The amount is excluded income to the company and treated as drawings to the shareholder employee; or
• The amount is treated as taxable income to the company but passed out to the shareholder as part of the shareholder salary.
3. Working From Home
Many of our clients and their staff will be working from home where they can. Under the current circumstances this is quite different to usual flexible work arrangements. Staff may feel isolated, anxious and just in general ‘weird’ about it. The first few days can be particularly daunting if it isn’t their normal.
Some tips for you and your staff while making the adjustment:
• Have a routine. Whether you’re sticking to your normal routine or creating a new one, a routine will help with adjusting.
• Take regular breaks, call a friend for a coffee break, have lunch away from your workspace.
• Exercise! A quick walk around the block a couple of times a day will make the world of difference.
• Create a workspace where, if possible, you can close off from family, children, flatmates, etc.
• Use Zoom, Hangout, Skype, FaceTime to video conference your peers, manager, direct reports regularly.
• Have healthy snacks on hand to avoid the temptation of the fridge being so close.
• Keep in touch. Check in with staff and see how they’re going.
4. Wellbeing and Xero Assistance Programme (XAP)
Times of uncertainty can be particularly challenging on mental health.
Xero has set up the Xero Assistance Programme (XAP) to help their Xero customers (or their families and staff) who are feeling stressed or mentally unwell as a consequence of the new world we find ourselves having to deal with.
Businesses who are on a Xero starter, standard or premium plans are able to use this service for free, as are their families and staff.
We encourage Xero customers to make use of this and refer staff or family if you feel they need it.
To find out more about the Xero Assistance Programme (XAP), please use the following link, send an email to the address below, or reach out to us: XAP – FAQs
For more information about the Xero Assistance Programme, you can email firstname.lastname@example.org
Disclaimer: The above is general in nature. We have used our best endeavours to come up with practical answers in the circumstances. However, you will appreciate that this is a fluid situation and limited information is available from official sources.