Tax implications of Government Support Payments during COVID-19
Following the discovery of a community case of the Delta variant of COVID-19, at 11.59pm on 17 August 2021, New Zealand was placed into Alert Level 4 Lockdown. As a result of this, the Government has announced that the COVID-19 Wage Subsidy Scheme will be available again alongside COVID-19 Resurgence Support Payments.
The key details of the Wage Subsidy Scheme are as follows:
- Applications open at 9am on Friday, 20 August 2021 for two weeks;
- It is expected that payments will be received within three days of applying;
- Businesses must expect a loss of at least 40% of revenue as a result of the move to Level 4;
- Businesses will be eligible to get:
- $600 per week per full-time equivalent employee; and
- $359 per week per part-time employee;
- The Wage Subsidy will be paid in a two-week lump sum; and
- Businesses can apply for the Wage Subsidy at the Work and Income New Zealand website.
Read more about this in our article COVID-19 Income Support Mechanisms: Wage Subsidy Scheme Available Again.
Income Tax Treatment
The wage subsidy is excluded income to the employer. Therefore, it is not required to be included in the employer’s tax return. However, the employer will be denied a deduction for the portion of the wages paid to an employee covered by the wage subsidy.
The employer must continue to withhold the relevant PAYE, KiwiSaver, child support and student loan deductions from the salary or wages covered by the subsidy in the usual way. The wage subsidy amount is included and returned as a gross amount in an employee’s pay, not a net amount. It is taxable remuneration for the employee.
The tax-free treatment for employers receiving the wage subsidy for their employees does not apply to self-employed people who receive the subsidy for their personal loss of income. The subsidy will only be excluded income for a self-employed person to the extent it is used by them to subsidise wages of their employees.
Generally, GST-registered businesses receiving government grants and subsidy payments are required to return GST on payments received. However, COVID-19 wage subsidies have been added to the schedule of non-taxable grants and. An employer, therefore, is not liable for GST on the subsidy received.
Resurgence Support Payment
The COVID-19 Resurgence Support Payment is a one-off grant to affected businesses and aims to reduce the financial impact of resurgence.
The COVID-19 Resurgence Support Payment is available for businesses if they incur a loss of 30% of revenue over a 7-day period as a result of the move to Level 4. The 7-day period starts from the day of the alert level increase. If the increased alert level lasts for more than 7 days, businesses can choose a different start date for the 7-day period, however the total 7-day period must be during the increased alert level.
A qualifying applicant is eligible to receive $1,500 plus an additional $400 for each full-time equivalent worker employed by the person (up to a maximum of 50 full-time equivalent workers) and can apply for the wage subsidy in addition.
Application for the grant can be made on myIR accessed through Inland Revenue’s website. The website also contains a calculator which may be used to estimate the amount of the payment that an applicant may be entitled to.
The grant, together with other amounts such as interest and penalties, must be repaid if a person receives the grant despite not meeting the eligibility criteria or if the terms and conditions of the grant are breached. The payment must be used to cover business expenses such as wages and fixed costs.
Income Tax Treatment
As with the wage subsidies, payments received under the resurgence scheme are not subject to income tax and expenditure funded by payments under the scheme is not deductible.
If interest is charged on a grant that must be repaid, the person is not required to deduct resident withholding tax from the interest.
GST-registered businesses will return GST on payments received under the scheme. These businesses will be able to claim input tax deductions for expenditure funded by payments under the scheme.
The above is intended for informational purposes only and should not replace specific tax advice. For personalised advice on all tax issues please contact Julia Johnston at Saunders & Co.