Dear Clients, Friends and Associates of JACAL
At this message time of release the JACAL office remains open as usual to support you, we expect though there is the real possibility of Government mandated closures in the very near term.
We can continue to work with you by phone, email and other technology platforms such as Skype, Zoom, Microsoft Teams as required. Also the JACAL team can work from home and we are well placed to meet your continuing needs and support you.
All of our teams’ contact details during this time remain the same, and you can reach us any time as needed.
We are prepared for a number of scenarios and have plans in place if we, as a team or individuals, have to self-isolate to ensure the smooth continuation of business.
We are here to support you and your team where we can, so you can focus on the stability of your business and the well being of your staff and family.
Government COVID-19 Stimulus and Support Package
This is our initial release as at 19 March 2020, things have changed, and we will run a further update by Monday 30 March 2020
The government has announced an initial $12b support package in response to Coronavirus, together with further updated assistance releases since then.
Please remember the situation is new, fluid and dynamic. We are providing advice on un-interpreted areas, and we all may be dealing with agencies that don’t have a good working understanding of the packages themselves. If you are getting information from multiple sources some of it may be wrong and conflicting, especially advice that came out very early. For this reason we have waited to release our interpretation once we had more fully reviewed as much material as possible. We have gathered the best information we can find from various sources.
It is critical to remember that in taking some of the support packages there may be some downstream consequences and tests. It appears that in some cases payments are made on trust now, but you may be reviewed and retrospectively verified and qualified/disqualified.
At present the support package is in three defined zones:
- Support to cushion the impact of the initial economic shock on businesses and employees;
- A wider ranging support and recovery package to assist household incomes through the potential economic effects and to stimulate the economic recovery;
- Extra resources and support for the health system and workers
We anticipate that this will be followed up with further announcements over the coming over the coming days weeks and months and also in the May 2020 Budget.
- For businesses experiencing more than a 30% decline in revenue year-on-year due to COVID-19, the Government has pledged $5.1 billion to subsidise wages over the next 12 weeks, effective from 17 March 2020. The start point on this needs to be confirmed and verified. Please refer to the link at the bottom for the fact sheet. It appears to be for any months between January and June 2020 compared to the same period in 2019.
- Eligible firms will be provided a lump sum payment of the equivalent of $585 per week per full-time employee and $350 per week per part time employee for 12 weeks, the initial cap of $150,000 per employer, has been removed and all employees are covered.
- These packages will be in place initially for an 8 week period, at which point the Government will reassess it based on the situation at the time. The schemes are available to all businesses in all sectors nationwide, including the self-employed and sole traders. Please be careful under which category you apply there are three, and ensure you don’t claim twice for employees who might be working elsewhere or contractors who should be claiming themselves not via you. Please call us rather than navigating this yourself if you are not certain.
- You will need to have made and effort to have talked to your bank or financial advisors as evidence of attempting to get other forms of financial assistance.
- Given there is probably high interest in this area we have put more detailed notes from our tax team at the very bottom of this communication.
COVID-19 Leave Payment
- The COVID-19 leave payment scheme is designed to incentivise self-isolation by employees, the self-employed and contractors. The scheme will provide support through employers (and to sole traders and the self-employed) for those people unable to work who are either in self-isolation, are sick or are caring for dependants who are in either of these situations. Employers will still be expected to meet all of their sick leave and other employment expectations. Key points:
- An entitlement period of 14 days for those self-isolating, and for the entire period of sickness for those who contract COVID-19
- Eligibility is open to all firms, the self-employed, and for contractors, but not for those who can work from home.
Key Business Tax Changes
The following have been announced in terms of tax changes to increase business cash flows and stimulate investment. Including:
- The reinstatement of depreciation deductions for commercial and industrial buildings at a 2% diminishing value, from the 2020-21 tax year;
- Increasing the threshold for provisional tax from $2,500 to $5,000 applying from the 2020-21 tax year;
- Increasing the threshold for writing off low value assets to $5,000 applying from the 2020-21 tax year, before returning to $1,000 in 2021-21 tax year;
- Giving discretion to Inland Revenue to remit interest on tax debt if the taxpayer is unable to pay on time due to the impacts of COVID-19.
- The government has passed legislation with the ability to let IRD remit late payment penalties and interest on taxes not paid on time due to COVID-19, we will update this further in due course.
The package had the following measures to support NZ’s most vulnerable:
- A $25 per week permanent increase to main benefits, from 1 April 2020;
- A doubling of the amount paid in 2020 through the Winter Energy Payment to $90 per individual and $140 per couple (per month) ; and
- Removing the hours test from the In Work Tax Credit to assist those who may face variable hours.
The Government is meeting with banks and financial institutions to discuss future working capital support, including loan guarantees for businesses that may face temporary credit constraints. In addition, a range of measures to support the aviation and related sectors are being considered.
To find out if you’re eligible for assistance as part of New Zealand’s fiscal stimulus package, please contact your normal JACAL business advisor .
Government Fact Sheets on the COVID-19 Stimulus Package can be viewed at the Government Website below, there are fact sheets there on;
- Business Cashflow and tax measures
- Wage Subsidy Scheme
- COVID Leave Support
- Income Support
- We are in contact with all major banks, and most now have a formal COVID-19 packages in place.
- They will be supportive with temporary overdrafts and in some cases a reduction in interest rates.
- We will help to facilitate and assist you in requests for any short-term assistance you may require from your bank.
- The Reserve Bank earlier this week made an emergency Official Cash Rate (OCR) cut to 0.25%, from 1%. It will remain at 0.25% for at least 12 months. In addition the Reserve Bank have deferred the increased capital requirements on banks, expected to have freed up an additional $47 billion of capital funds. The banks have passed on the majority of the rate cuts to customers on floating rates already, however fixed rates may not drop as significantly.
- The IRD are offering help in a number of ways, by providing early refunds if tax has been overpaid. They are being more pragmatic with the implementation of instalment arrangements, and in some cases may be willing to consider write off provisions if a serious hardship can be evidenced for those affected by any downturn caused by COVID-19.
- There may be further extensions to filing dates for some tax return types, but note these are unlikely to be granted for GST or PAYE, regardless of payment being made please file returns on or before the due date. Remission of penalties and interest on COVID-19 related late paid taxes.
Checklists for other items (not exhaustive)
- As coronavirus continues to spread, you should be proactive in assessing and taking all practical measures to manage and minimise risks that may arise. This may include:
- Try to get visibility ASAP re your cash positions now and in the future (today, a week, a month from now), the management of cash flow may be key to minimising some of the negative effects. It also enables a proactive approach in terms of talking to banks and others.
- Talk and keep talking to key suppliers and key customers about how you can all work together to lessen impacts.
- Checking Insurance policies, leases, agreements and contracts including employment contracts to see if coronavirus would be covered by force majeure provisions to ensure that notice and timing requirements are being complied with.
- Ensure you keep accurate records and correspondence as it will be important for setting up and responding to any claims.
- Start dealing as early as possible with counterparties to consider alternatives to avoid or minimise the impacts of coronavirus, such as accessing goods and materials from unaffected suppliers. This is relevant given many agreements often include a duty to mitigate risk.
- Check if insurance cover might assist where loss occurs and ensuring that any policy requirements are complied with.
- Considering impacts across your broader business and relationships – how would any relief granted under one contract impact a party’s obligations at a later date, is a president being set?
- Review and assess if you can get out of a contract for an extended force majeure. If the event is for an extended period of time, can you terminate?
- A force majeure, is typically an event like an epidemic or pandemic that is in the circumstance, unforeseeable, outside of a party’s control, could not have been avoided or overcome, and causes the party to be unable to perform its contractual obligations.
Detailed and Specific points on the Wage Subsidy
The key driver is to get money circulating in the hands of workers.
There is no reason to delay eligible applications. MSD make the following point:
The subsidy is being administered under a high trust model and employers will not be asked for verification before the subsidy is approved.
All subsidy payments will be subject to audits and reviews. That means they will pay first and ask questions (and take any compliance action) later.
To qualify for the wage subsidy:
- Your business must be registered and operating in NZ; and
- Your employees must be legally working in NZ; and
- Your business must have experienced at least a 30% decline in revenues (actual or forecast) in a month between January and June 2020 (compared to the same month one year ago, as a test, but remember you have future months you can’t do this for in lock down so it is OK to estimate now); and
- That decline is related to COVID-19 issues; and
- Your business has taken active steps to mitigate the impact of COVID-19; and
- You make your “best efforts” to retain employees and pay them at least 80% of their normal income over the subsidy period (think at least 4 days out of 5 for most people working 20 hours or more a week).
- The Leave Subsidy for specific employees does not require the 30% drop in revenue, but it’s a very specific employee related subsidy, not business wide.
Critical definitions are:
Business means an entity registered with the NZ Companies Office, which is physically located in NZ and whose employees legally work in NZ.
Legally working in NZ means a NZ or Australian citizen or a NZ resident visa holder or a person holding a NZ work visa (or a temporary visa that allows them to work here).
Revenue decline means actual or predicted revenue decreases experienced between 1 January 2020 and 9 June 2020, measured on a monthly basis. Projected declines can be based on events like cancelled orders or bookings.
Note also that:
- Businesses operating less than a year must compare their revenue losses against a previous month that “gives the best estimation of the revenue decline related to COVID-19”. This phrasing suggests a reasonable amount of latitude – just ensure your comparative analysis is reasonable in the circumstances.
- It is recommended that shareholders of close companies should put employment agreements in place between themselves and their companies. This will remove any doubt about their employment status, after the subsidies have been paid.
Find out more
The whole JACAL Team are standing with you, and by working together to support each other we will prevail and get through this. We are focused on helping support you in whatever way we can, and encourage you to reach out to us as you need to. Please take care and we wish good health to you and your family and friends.
The JACAL Team