(3 minute read)
Hi there accounting fans! The NZ Government has announced that NZ COVID support will be available soon. This guide will focus on two of the most applicable types of support that is available to businesses owners in Aotearoa NZ:
- The Wage Subsidy (open on 9am, 20 August 2021)
- The Resurgence Support Payment (open on 8am, 24 August 2021)
Please note that both types of support are available to all business owners and self employed individuals who meet the respective criteria. In most cases, you will be eligible for both types of support. They are not mutually exclusive.
NZ COVID support – Wage subsidy
The wage subsidy is designed to help businesses keep their employees employed. The wage subsidy can also be used by self employed individuals/contractors/solo business operators to pay themselves. In order to apply for the wage subsidy you must:
- Operate a business in NZ (self employed individuals can apply as well – make sure that you have self employment declared as an income type on your IRD profile in MyIR) and/or employ staff in NZ.
- Have experienced or will predict to experience a 40% or more decline in revenue due to the lockdown.
Note that the wage subsidy applications are usually open due to a shift to alert levels 3 or 4 for a period of at least 7 days. It doesn’t usually activate at lower levels.
How does this NZ COVID support work?
The wage subsidy will pay out $600/week per full time employee (20 hours a week or more – this includes the owner shareholder(s) as well) and $359/week per part time employee (less than 20 hours a week). Payment will be made for a two weeks’ lump sum to your named bank account.
e.g.: Nikora runs a dental practice which has 2 full time employees and 1 part time intern. Due to the lockdown, him and his team cannot attend their patients as per normal. He predicts a revenue decline from $20,000 to $8,000 over the next 14 days (an 80% decline) during the period of the lockdown. Nikora can apply for a wage subsidy of $2,059 ($600 x 3 FTEs + $359 x 1 PTE) per week times two for a lump sum of $4,118.
Note that you are obligated to show your best endeavours in paying your employees up to 80% of their normal wages using the subsidy. Where this is impossible, you MUST pay them their full eligible subsidy amount. You are only required to pay your employees up to their normal, regular wage. If the subsidy is higher than their regular wage, you can use the excess to top up the wages for other, higher paid employees.
If at any time after receiving the subsidy, your circumstances change, you can make a repayment to MSD.
The application process for the wage subsidy is similar to previous wage subsidies. The application form will be made available on the MSD website on 9am 20 August 2021.
Tax treatment for the wage subsidy
The wage subsidy is NOT treated as taxable income for a company that receives it. The wage subsidy is taxed through PAYE when paying it to employees. Shareholders receiving the wage subsidy will get taxed on the amount through their personal income tax (not the company’s). From an accounting point of view, the wage subsidy is treated as a liability (Wage subsidy payable) when received. This liability is reversed once the payments to all employee and shareholder salaries are made. Wages/salaries paid from the wage subsidy are NOT a tax deductible expense.
If you are self employed, the wage subsidy is added to your total personal income (after expenses) and you will be taxed on it.
There is NO GST charged on the wage subsidy.
Talk to an accountant if you need additional assistance on the matter.
NZ COVID support – Resurgence Support Payment (RSP)
The resurgence support payment is a payment made to all businesses to help them support their business operations. It differs from the wage subsidy because it does not need to be paid directly to employees. There is no obligation to use the Resurgence Support Payment (RSP) to maintain employment. To apply for the RSP, you must:
- Operate a business in NZ (self employed individuals can apply as well – make sure that you have self employment declared as an income type on your IRD profile in MyIR).
- Have experienced or is facing a 30% or more decline in revenue due to the change in alert levels over a 7 day period.
The RSP usually kicks in when there is a shift to any alert level above alert level 1. This is still subject to Government approval and is not a guaranteed scheme every time alert levels rise.
How does this NZ COVID support work?
The RSP allows a payout of the lower of:
- $1,500 plus $400 per full time equivalent (FTE) employee up to a maximum of 50 employees
- Four times (4x) the actual revenue decline experienced by the applicant
A Full time equivalent is an employee working 20 hours a week or more (1.0)
A part time equivalent is an employee working 20 hours or less a week (0.6)
E.g.: Yendell runs an event management company with 4 FTEs. Due to the change in alert levels, all of their future events in the next 7 days have been cancelled. Yendell works out that this will bring their revenue down from $5,000 for the 7-day period to $2,500 (a 50% decrease of $2,500). When applying for the RSP, Yendell needs to apply for the lower of either $3,500 ($1,500 plus $400 x 5 – Yendell is the owner-operator and is considered an FTE) or $10,000 ($2,500 x 4). Since $3,500 is lower than $10,000, Yendell can only receive $3,500.
The start date for the RSP calculation can either be the start date of the change in alert levels or, if the alert level change is for more than 7 days, any 7-day period within the alert level change.
You can apply for the RSP through your organisation’s (your personal if you’re self employed) MyIR dashboard. This will be available from 8am 24 August 2021.
You CAN apply for the RSP even if you have received other Government COVID support.
Tax treatment for the RSP
(EDIT: An earlier version of this article said that RSP is added to taxable income. I have confirmed that this is NOT the case. I apologise for the error)
(EDIT: An earlier version of this article said that RSP has no GST on it. This is not the case either, please see changes below for an illustration on how to deal with GST on RSP)
The tax treatment for the RSP differs from the tax treatment for the wage subsidy. The RSP is not considered to be taxable income for the company or self employed individual that receives it. Furthermore, you cannot claim expenditure for tax purposes on expenses funded by the RSP.
GST treatment for the RSP
Unlike the wage subsidy, RSP is subject to GST if you are a GST registered business. This means that when you receive the RSP payment, it is treated as a GST-inclusive sum.
e.g: You receive $1,900 from the RSP payment. Part of this amount includes $247.87 which is GST payable.
The good news is that any expenses you spend the RSP on can be used to claim GST receivable, which will offset your GST payable.
e.g: You spend the $1,900 RSP payment to pay your commercial rent. Part of this amount is GST receivable of $247.87 which you can use to offset the GST payable amount from the receipt of the initial RSP payment.
So while the RSP is non income taxable, It is still subject to GST treatments for receipt of the RSP payment and the expenses it is used for.
If you receive payment for your services from a client/customer who uses their RSP to pay you, you return GST as normal (if you are GST registered) on these payments (even if said clients are not declaring those expenses paid to you on their tax return). You will declare this income and may claim expenditure on this type of income as normal.
Recording the RSP
The RSP is used to cover business expenses such as wages and fixed costs. The best way to record RSP from an accounting perspective is to setup a RSP payable liability account when first receiving the payment. Be sure to apportion out the GST portion to your GST payable account. From then on, all expenses covered by the RSP should be reconciled to the RSP payable liability account. Be sure to apportion the GST portion of your expenses to the GST receivable account. This will reverse out the liability and keep the expenses from affecting your profit figure for tax purposes.
Talk to an accountant if you need additional assistance on the matter.
Other NZ COVID support
There are other types of business support that you can apply for if you are eligible. These include the Short-term Absence Payment scheme, Leave Support Scheme, Small Business Cash Flow loan scheme and much more. For more information on these other schemes, please visit the Business.Govt.NZ page.
In the meantime, stay safe and most importantly:
Stay Positive!