23rd March, 2020
With the announcement of tax breaks and other stimulus available for businesses impacted by COVID-19, we asked local experts what businesses should focus on today to maintain stability.
Last week, the Ardern Government announced one of the largest COVID-19 fiscal response packages of any nation, worth around four percent of New Zealand’s GDP.
While that sounds like a benefit to businesses all over the country, the details of the stimulus will mean not all will qualify, and how much they receive will be dependent on each individual case.
UPDATE: Prime Minister Jacinda Ardern has just announced the country will be on threat level 4 within 48 hours, with all non-essential businesses instructed to close for four weeks from Wednesday. All bars, restaurants, cafes, gyms, cinemas, pools, museums, libraries, playgrounds and any other places where the public congregate must cease face-to-face interaction. Takeaway food businesses must close on Wednesday. Air transport and public transport will only be available for essential services and freight. What’s deemed ‘essential’ may change. Keep up to date on what qualifies as essential services on this page.
With that in mind, we asked a number of MYOB’s trusted Partners what NZ businesses should focus on in order to qualify and apply.
The first thing business owners can do is make any changes to their business processes as necessary to ensure business can continue as smoothly as possible and should do their best not to trigger any panic, recommends Kylie Liew, director for Giles & Liew Chartered Accountants Ltd.
“The COVID-19 pandemic will cause some disruption to business across New Zealand which may last some time,” said Liew. “But business owners could make things worse by making hasty decisions and not obtaining the correct professional advice.
“Take sensible precautions and carefully monitor the situation and make changes as necessary to ensure that business can continue as usual.”
The business-as-usual message was echoed by Richard Abel, chairperson for the Accountants and Tax Agents Institute of New Zealand.
“Keep operating and keep spending! Just like it is important to shop normally (instead of storing up food and mass buying therefore limiting the supply of goods to others), it’s important for the economy that business owners keep purchasing.
“The whole stimulus package works on the basis that businesses and taxpayers will spend the extra money they receive from the government and in turn will keep the economy going. If everyone takes on a “doom and gloom” viewpoint then “doom and gloom” is more likely to occur.”
Abel also notes that this doesn’t mean business owners should suddenly begin recklessly spending everything they can, but that “we all have a role to play in keeping the economy moving by being positive in thought and action”.
The first thing to be aware of is the standard leave entitlements for sick workers do apply, but there are also accommodations being made for employers that find themselves short-staffed, says Liew.
“There is a Leave Payment that may be available if you’re an employer, contractor, sole trader or are self-employed and negatively impacted by COVID-19,” said Liew
“It covers full-time, part-time and casual employees as well as contractors legally working in New Zealand who need to self-isolate in line with Ministry of Health Guidelines.
“Specifically, it covers those workers who have registered as needing to self-isolate with Healthline, who cannot work from home or who cannot work because they’ve been diagnosed with COVID-19, or they are caring for dependents who are.”
This does not cover New Zealand residents who must self-isolate because they left the country since the travel restrictions came into being on 16 March.
If eligible, the employer can expect to be paid a flat rate of $585.80 for a person working 20 hours per more a week or $350 for a person working less, and it must be passed on to the worker in full.
“The good news is, the leave payment can be received for 14 days if an employee is required to self-isolate, or for the entire period a person is ill with COVID-19, but it must be applied for every 14 days,” said Liew.
“And it can be applied for multiple times.”
If your business is registered and operating in New Zealand, your employees legally work in New Zealand, and you’ve experienced a drop of 30 percent (or more) in actual or predicted revenue over any month, year-on-year, as a result of COVID-19, then you may be eligible for wage subsidies.
As Liew advises, there are a number of criteria your business must also satisfy to qualify for these subsidies, including:
“If successful, employers will receive a lump sum, covering 12 weeks per employee at a flat rate of $585.80 for people working 20 hours a week or more, and $350 a week for people working less than that.
“At most, they can hope to receive $150,000 in wage subsidies and it is only to be available once, for wages only.”
UPDATE: As of today, the cap on wage subsidies has been lifted entirely in order to compensate for widespread closures under lockdown, with further allowances made for new businesses, high-growth firms and self-employed.
“Many small businesses have held back claiming the wage subsidy because they have not seen a 30 percent decline in revenue over the period of a month,” said Abel in response to the updated wage subsidies guidance.
“But due to the recent announcement regarding moving into Covid-19 Level-4 on Wednesday, it is clear that many SMEs can predict at least a 30 percent decline for the month of April (particularly because not all businesses can facilitate their staff to work from home).
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“To ensure that you have the cashflow to keep your staff, apply for the wage subsidy now. Make sure you discuss this with your accountant or business advisor first to ensure you meet all the criteria.”
The team at Giles & Liew have put together a detailed summary of stimulus initiatives, which is available here.
Abel highlights other tax changes that the government has announced for the 2020/20 fiscal year, which are also aimed at keeping businesses solvent for the duration of the pandemic.
“These changes include the increase of the provisional tax threshold from $2,500 to $5,000, and to increase the small asset depreciation threshold from $500 to $5,00 for the period 1 April, 2020 to the 31 of March, 2021,” said Abel.
“They’re also going to allow depreciation on commercial and industrial buildings, as well as removing the hours test from the In-Work Tax Credit, starting 1 July this year.”
In the case of these changes, business owners will need to communicate with their tax agent directly to make sure they qualify.
While support measures have been designed to capture the vast majority of vulnerable small-to-medium business owners, sole traders and self-employed workers, that doesn’t mean there’s something in the government stimulus package for everyone.
Jeremy Bekhuis, partner at AgriFocus, said rural clients and farming businesses, immediate stimulus is yet to be seen.
“For our rural clients, we don’t see that there is any immediate stimulus,” said Bekhuis.
“There’s some support to decrease taxable income for the 2020-21 year, but by the time it comes to pay the tax for 2020-21, hopefully COVID-19 will have been and gone.”
In particular, Bekhuis points to the change in the provision tax threshold as holding little value for most agricultural businesses.
“The threshold of paying provisional tax has been lifted from $2,500 – $5,000, this is the equivalent of taxable income of $35,000 for an individual.
“The majority of our farmers earn more than this amount and business owners should be earning more than this amount given it is less than the minimum wage for a 40-hour week.”
No matter what situation you’re in as a business owner, monitoring and maintaining your position is more critical than ever.
Not only will sound financial management put you in the best possible position to keep the doors open for the foreseeable future, it will also help keep the economy running smoothly.
At the same time, staying on top of your tax and payroll obligations will also help you prepare for any further stimulus.
“Making sure you are up to date with all your tax liabilities and returns is very important,” said Abel.
“There are options for those taxpayers that can’t pay their tax on time such as tax pooling, as well as asking for potential remission of interest, but keeping your returns up to date and filed will allow you to correctly assess your financial position and help you to plan better for the next 12 months.”
For this reason, Bekhuis also recommends businesses actively engage with qualified professionals, including accountants and banks – especially if you’re looking like you might be in trouble.
“If the business is going to struggle with cash flow, it’s important to get bank support with either increasing working capital to see out these turbulent times, or putting any principal payments on hold for the foreseeable future,” said Bekhuis.
“Business owners are going to be nervous, but creating a plan early should help them sleep better at night.
“On top of that, preparing projections of lost income over the coming months will need to be completed should you need to prove your situation to IRD or lenders.”
This article does not constitute financial advice and business owners are strongly encouraged to speak with a certified accountant or financial advisor before making any decisions specific to your situation. You can look up an advisor near you using the MYOB Partner Search page.