March Tax Alert


COVID-19: Common questions in relation to the Wage Subsidy Scheme, the Extended Wage Subsidy Scheme and the Small Business Cashflow Loan Scheme

Tax Alert - May 2020

By Robyn Walker & Blake Hawes


Budget 2020 saw the announcement that the Wage Subsidy Scheme (WSS) would be extended, with a few twists. In this article we set out some common questions in relation to both the current WSS and the new Extended Wage Subsidy Scheme (EWSS). As the Small Business Cashflow Loan Scheme drives off the eligibility for the Wage Subsidy, the information below is also relevant for businesses who have (or will) apply for this the loan scheme.

Budget 2020 enhancements
  • From 10 June, businesses will be able to apply for the Extended Wage Subsidy Scheme (EWSS).
  • The EWSS will provide payments of $585.80 for a full time worker and $350 for a part-time worker for a period of 8 weeks. This equates to $4,686.40 and $2,800 for a full-time and part-time worker respectively.
  • To be eligible for the EWSS, a business must have experienced a 50% reduction in revenue in the 30-day period prior to the application date versus the nearest comparable period in 2019.
  • High growth and new businesses will be able to compare revenue to a comparable period within 2020.
  • Businesses which are pre-revenue research and development start-ups will now also be eligible for the current WSS as well as the EWSS if they are recognised by Callaghan Innovation and can demonstrate a reduction in actual or projected income from capital raises. Callaghan Innovation is assessing eligibility for this extension through an online application process.

Common questions about the wage subsidy scheme

Below are some common questions we have received about the current WSS. Unless indicated otherwise, it is expected that the EWSS will apply in the same manner (further details of the EWSS are not expected until closer to the 10 June start date for applications).

Can I apply for the Wage Subsidy simply because I expect to have a reduction in revenue?

No. The WSS has several other eligibility criteria that must be met before an application is made under the scheme. Broadly speaking the other criteria are:

  • Your business is registered in and operating in New Zealand;
  • You have taken active steps to mitigate the financial impact of COVID-19 (the extent of the active steps varies depending on the date you made the application, see below);
  • You will use the subsidy to:
    • retain the employees named in your application for the entire 12 week period you receive the subsidy;

    • use your best endeavours to pay the employees named in your application 80% of their normal salary/wages (if this is not possible you must at a minimum pass on the full value of the subsidy, or the amount the employee ordinarily earns if this is less).

You also must agree to a number of other information sharing consents and agree that you will repay the subsidy amount where you are no longer eligible.

The eligibility criteria and other requirements are listed in the relevant declarations made when an application is submitted. As the WSS was amended on Friday 27 March 2020, applications made before 4:00pm, Friday 27 March 2020 are subject to the first declaration and applications made on or after 4:00pm, Friday 27 March 2020 are subject to the second declaration.

How do I measure a 30% reduction in revenue?

Under the WSS a business must experience a minimum 30% decrease in actual or predicted revenue over a 30 day period during 2020 when compared to the same 30 day period during 2019, and that decrease in revenue must be attributable to the impacts of COVID-19. Separate rules exist for new, high growth, and R&D start-ups.

A “new business” is one that has been operating for less than 1 year at the date the application is made. A “high growth” business has not been defined by any part of the government for the purposes of the WSS and therefore is open to interpretation. In the instance you think your business is “high growth” we recommend the justification for this is clearly recorded and documented in the event your application is reviewed/audited (covered below).

Under the WSS a “high growth” or “new business” must also experience a minimum 30% decrease in actual or predicted revenue but may compare a 30 day period during 2020 to an earlier 30 period during 2020 when calculating the decrease in revenue. Similar to the regular business requirement the decrease in revenue must be attributable to the impacts of COVID-19.

As noted above, Budget 2020 included an announcement that pre-revenue research and development “start-up” businesses will be eligible to treat a 30% fall in in projected capital income as a result of COVID-19, as a fall in revenue for the eligibility of the WSS. To be eligible these employers must:

  • be research and development intensive ‘start-up’ businesses;
  • be ‘seed’ or ‘venture’ backed;
  • be Callaghan Innovation affiliated as of 17 March 2020;
  • have no other revenue other than government support and seed or venture capital.

The EWSS requires a 50% decrease in revenue across a slightly different comparison period, which is covered in further detail below.

What time period should I look at?

The comparative 30 day period does not need to be a calendar month. For example the period 26 March 2020 to 24 April 2020 could be used as this is the immediate 30 days following the first day of the Alert Level 4 Lockdown. This would then be compared to 26 March to 24 April 2019.

For the EWSS, the 50% revenue loss should be measured for the 30 days prior to the application and compared to the ‘nearest comparable period’ in 2019.

I am self-employed, how should I measure a decline in revenue?

When your self-employed revenue varies between months, this can cause uncertainty. The revenue comparison could take a 30 day period in 2020 and be compared against the previous years’ monthly average to determine whether a 30% decrease has occurred. Where an approach like this is taken, it should be clearly recorded and documented.

If I applied on the basis of an expected revenue drop and this has not eventuated, do I need to repay the Wage Subsidy?

If you have made a Wage Subsidy claim on the basis of anticipated revenue decrease (that would meet the requirements set out above) and the decrease in your businesses revenue over the projected period turned out to be less than the required 30% threshold, then you are required to repay the full wage subsidy received.

If you think this might apply to you, information of repaying the subsidy can be found here and the link to complete the form to make the repayment can be found here.

How do I determine whether my employee is part-time or full-time?

A full-time employee for the purposes of the WSS is a person that works 20 hours or more per week.

A part-time employee for the purposes of the WSS is a person that works less than 20 hours per week.

Where an employee’s hours vary from week to week, to determine whether they are full-time or part-time for the purposes of the WSS their weekly hours for the last 12 months should be averaged and considered against the two statements made above.

What do I need to pay my employees?

For the employees named in your application you must make your best endeavours to pay those employees at least 80% of their usual salary or wages for the entire 12 week period you receive the wage subsidy.

Similar to the question immediately above, where an employee’s salary/wages varies from week to week their weekly gross (before tax) pay for the last 12 months should be averaged and used as the basis of their “usual” salary/wages.

Where it is not possible to pay the named employees at least 80% of their usual salary or wages, at minimum the wage subsidy amount received must be passed onto the named employees (this is $585.50 per week for full-time employees and $350 per week for part-time employees), unless the employee ordinarily earns less than these amounts.

My employee has been on ACC or Parental Leave, what do I do with the Wage Subsidy payment in relation to them?

Paid parental leave

Employees that are receiving paid parental leave entitlements are not eligible to be named on an application under the WSS. If you have made an application under the WSS for an employee receiving paid parental leave you will have to repay to MSD the amount that relates to this employee. If you made an application under the WSS and did not include an employee who was receiving paid parental leave but that employee has since returned to work, you are eligible to make a second application in respect of this employee.

ACC payments

Similar to the analysis above, if an employee is receiving weekly compensation payments from ACC they are ineligible to be named on an application under the WSS. If an employee receiving weekly compensation payments from ACC returns to work you are eligible to make a second application in respect of this employee.

If an employee is injured and starts receiving ACC compensation payments after you have made an application under the WSS, you must declare the Wage Subsidy to ACC as income and their weekly compensation may be altered accordingly.

I have seasonal workers and/or fixed-term contract workers, what happens when their season or fixed-term contract comes to an end during the Wage Subsidy period?

If you have made an application for employees whose employment relations will cease and you proceed to stop paying them during the 12 week period you have received the subsidy, you will be in breach of your declaration made to pay all named employees for the duration you have received the subsidy.

Where the employee’s fixed-term contract or seasonal work has ended and you will not continue to pay the named employee you should notify MSD of this change in circumstance and repay the remaining amount of the subsidy to MSD.

In the instance of a fixed-term employee, the employer and employee may renegotiate terms to extend the fixed term period to the end of the 12 week wage subsidy period for that employee to receive the full benefit of the subsidy.

I’ve had to make an employee redundant, what do I need to do?

If you have made an employee redundant and they were named on your application under the WSS you will be in breach of your declaration made to retain your employees named in your application.

You are able to use the wage subsidy amount to pay the employee any “notice period” obligations arising from the redundancy and the remaining balance must be repaid to MSD (i.e. total amount received, less amounts paid to the employee for weeks employed and less notice period obligations).

You cannot use the Wage Subsidy to make any contractual redundancy payments to an employee.

My employee has voluntarily left, what do I need to do?

If an employee resigns during the Wage Subsidy period you must inform MSD of the updated circumstances. However, the remaining Wage Subsidy amount does not need to be repaid to MSD. The additional amount should be used to subsidise the wages of other employees.

What happens if my business is placed into receivership or liquidation?

If your business is liquidated or a receiver/liquidator sells your business during the subsidy period, and the new owners do not take on the employees named in the WSS application, then the business will not have met their obligation to retain staff and they must repay any amount of the Wage Subsidy remaining for these employees.

When employees are made redundant, the Wage Subsidy can be used to pay the notice period but cannot be used to meet any redundancy payments owed under contract and cannot be used to support other remaining affected employees.

I am not entitled to the Wage Subsidy Scheme. Is there anything available to help pay employees who are unable to work due to COVID-19?

If your business is not eligible for the WSS but your ability to support your employees have been negatively impacted due to the COVID-19 public health restrictions, you could be eligible for the COVID-19 Leave Support Scheme (LSS).

You are able to make an application under the LSS if your employee is not able to work because of the COVID-19 public health restrictions. This means they are:

  • At high risk if they contract COVID-19, per the Ministry of Health guidelines.
  • Have household members that are at high risk if they contract COVID-19 and the Ministry of Health recommends that employee remains at home to protect that person.
  • Have been in contact with a COVID-19 positive person and must self-isolate.
  • Have tested positive for COVID-19 and cannot return to work until cleared by a health professional.

The LSS is paid at the same weekly rate as the WSS ($585.80 per week for full-time workers and $350 per week for part time workers) but is paid in a lump sum for 4 weeks only. If an employee is impacted by any of the listed bullet points above for a period of more than 4 weeks you may re-apply for the same employee in the fourth week of receiving the first LSS payment.

You cannot make a claim for any employee under two different schemes at the same time. If you have made a claim in respect of any employee under the WSS and that employee cannot work due to the factors listed above, you are not able to make a claim under the LSS.

Will anyone be auditing my application?

As seen in the media over recent weeks, MSD have requested that numerous applicants of the WSS repay the subsidy amount in full. This is a result of the Government auditing applications using information available to MSD (from the application itself) and information from Inland Revenue (for example, monthly payroll data).

If you would like your business to be “audit ready” in the event MSD or Inland Revenue review your application, please reach out to your usual Deloitte advisor. Deloitte has developed an Audit-Ready Checklist that can be used for you to gain comfort that you have made a valid claim under the WSS and that can be used as defence document in the event your application is audited.

When can I apply for the EWSS?

Full details of the EWSS have not yet been made available. However, our expectation is that you cannot make a claim under the EWSS until 12 weeks have passed from the date of your original WSS application. The earliest date the EWSS can be applied for is 10 June 2020, being 12 weeks from the first day the WSS was introduced and available.

If you did not make a claim under the WSS until, say, 30 April 2020, our expectation is that you must wait until 23 July 2020 (after 12 weeks have passed) until you can make a claim under the EWSS. We are seeking confirmation on this point from officials.

How do I measure the 50% reduction in revenue required for the EWSS?

To make an application under the EWSS, your business must experience a minimum 50% decrease in revenue for the 30 days immediately before you apply for the EWSS, compared to the closest 30 period during 2019.

Similar to the concessions available in the WSS, “new” and “high growth” business may compare the 30 days immediately before application to a period of 30 days earlier in 2020.

The EWSS is for a period of 8 weeks and our expectation is that all other eligibility criteria and declaration requirements of the WSS will largely remain the same.


High growth company

FooF Ltd is a boutique porcelain pottery company that specialises in coffee and tea mugs with fun and quirky designs. Their average monthly revenue in the 2018 and 2019 income tax year was $50,000. In October 2019 they released a new range of mugs which were seen being used by celebrities and FooF Ltd began to grow rapidly with monthly revenue from November 2019 to February 2020, averaging $150,000. To keep up with the additional demand, FooF Ltd hired ten additional employees. During March to June 2020 the monthly average revenue decreased to $75,000 per month as worried consumers did not want to spend their money on creative coffee and tea mugs due to the financial stress bought on by COVID-19.

If FooF Ltd were to compare any 30 day period during 1 January 2020 to 9 June 2020 to the same 30 day period in 2019 they would not be able to demonstrate a 30% decrease in revenue, albeit being significantly impacted by COVID-19. FooF limited are able to calculate a decrease in revenue as if they are a “high growth” business, by comparing a 30 day period in the lead up to 9 June 2020 to an earlier 30 day period during 2020. This would likely be satisfied when comparing the 30 days of April with the 30 days of February and on this basis FooF Ltd could make a claim under the WSS.

Repaying the WSS in full

Bike with Buddies Ltd (‘BWB’) is bike retailer that sells various high-end e-bikes, road bikes and mountain bikes and also sells bike touring packages. BWB employees a number of staff that are employed to run the retail business and operate the biking tours. As the bike tour revenue is primarily derived from sales to foreign tourists, on 30 March 2020 BWB predicted a decrease in revenue of more than 30% for the 30 days of April 2020 when compared to 2019 due to the New Zealand 4 week lockdown and international travel restrictions. On this basis BWB made an application under the WSS at that time.

During the 30 days of April, more New Zealanders realised how great biking is for exercise and socialising and sales of bikes of all types increased dramatically. As a result the increase in bike sale revenue nullified the impact of BWB not providing bike tours and BWB did not incur a 30% decrease in revenue. As a result BWB is not eligible under the WSS and must repay the Wage Subsidy amount in full.

Repaying the WSS in part

Alternatively: While bike sales did increase during April 2020, BWB was still able to demonstrate a 30% decrease in actual revenue during the 30 days of April 2020 when compared to 2019 and is eligible under the WSS.

BWB’s wage subsidy application on 30 March 2020 was for 15 full-time employees and they received a total of $105,444. On 3 May 2020 it was decided that BWB would discontinue the bike touring operations and needed to make three full time staff redundant. These staff had a two week notice period in their employment contracts. BWB would be required to inform MSD of this change in circumstance and repay the portion of the subsidy that was not used.

As the redundant staff had worked, they received five weeks of the Wage Subsidy (30 March 2020 to 3 Mar 2020) and are entitled to a two week notice period. In in total, seven weeks of the 12 week subsidy will have been used on each employee and the remaining five weeks will have to be returned. As the 12 week subsidy is $7,029.60 per employee ($585.80 per week), BWB will be required to return $2,929 per each employee made redundant.

Leave Support Scheme

Fresh Fruits Ltd (‘FFL’) is a fresh fruit retailer that employees five full-time staff. FFL was considered an essential business during the lockdown period and continued to trade as usual. As a result the business did not make an application under the WSS. One of FFL’s employees is older than 70 years of age and it has been advised that they remain at home for a period of eight weeks due to their high risk profile.

FFL can make an application under the LSS for this employee. In the fourth week following the first application, FFL can make another application for the same employee.

The elderly employee then makes the decision after six weeks to return to work as they are feeling a lot safer. The remaining two weeks of subsidy received by FFL must be returned to MSD unless FFL can use the additional funds to support in paying the salary/wages of other employees. 

Small Business Cashflow Loan Scheme

The Small Business Cashflow Loan Scheme (‘SBLS’) opened for applications on 12 May and since then Inland Revenue has been inundated with applications, coming through at a rate of up to ten per minute initially.

To be eligible for the SBLS you need a number of criteria, including:

  1. You need to be eligible for the WSS;
  2. You must have 50 or fewer FTE staff (combined with any other commonly owned businesses);
  3. Your business must be ‘viable’.

The threshold for Full-Time Equivalent (FTE) is the same that is used for the WSS – 20 hours or more is full-time, less than 20 hours is part-time.

How much can I borrow?

The maximum amount of funding you can receive from the SBLS is a $10,000 base loan plus $1,800 per FTE employee with a maximum loan of $100,000.

A calculator to assist you in determining the amount you are eligible to apply for has been developed by Inland Revenue and can be accessed here. We note that if you have already made a claim under the WSS, the FTE employees will be determined by dividing the Wage Subsidy amount that you received by $7,029.60 and rounding up to the nearest FTE employee.

What is a ‘viable’ business?

To be eligible for the SBLS loan, the business needs to be viable and have a plan to ensure it remains viable. This could include the directors or owners having good reason to believe it is more likely than not the business will be able to pay its debts as they fall due within the next 18 months. It is essential to document why the business is viable as Inland Revenue will be auditing applications. Inland Revenue suggest the following examples of evidence that business should consider keeping:

  • A cash-flow forecast for the business or organisation for the short term.
  • A plan for where revenue will come from in future market conditions, and a forecast of those revenues.
  • Financial statements showing the business or organisation has enough resources to sustain itself when including the SBCS loan.
  • Your accountant’s assessment that the business or organisation is viable and ongoing.

Are there any restrictions on what the loan can be used for?

When applying for the loan, it is necessary to confirm that the loan will be used for core operating costs (e.g. rent, insurance, utilities, supplier payments), and that the loan will not be passed through to shareholders or owners of the business (as either a loan or a dividend).

What are the terms and conditions?

Anyone applying for the loan should ensure they have fully read all of the terms and conditions as there are a number of actions which could trigger an event of default (requiring an immediate repayment of the loan, and a default interest rate).

When do I have to repay the loan?

The loan term is five years. It is not necessary to make any loan repayments for the first two years; after this time Inland Revenue will advise of an instalment plan. Voluntary payments can be made at any time.

How much is the interest?

Once received, the loan is subject to interest at 3% per annum. If the loan is repaid within one year no interest will be charged. If the loan is paid off within the five year lending period but after more than one year, the 3% interest rate will apply for the entire length of the loan (i.e. will be charged on the first year also). In the event that there is a default on the loan, the interest rate is increased by Inland Revenue’s use of money interest rate (currently 7%).

How do I apply?

As noted above, it is essential to ensure you understand the obligations associated with the loan, including establishing the current and ongoing viability of the business. We are here to help you with this.

Applications are currently open until 12 June. You can find out more about the application process here.

If you have any questions in relation to the issues discussed above, please consult your usual Deloitte advisor.

The content of this article is accurate as at 22 May 2020, the time of publication. This article does not constitute professional advice. If you wish to understand the potential implications of current events for your business or organisation, please get in touch. Alternatively, our COVID-19 webpages provide information about our services and provide contacts for relevant experts who can help you navigate this quickly evolving situation.

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