February 2021 Tax Alert


COVID-19 backup support for business revealed

Tax Alert - February 2021

By Robyn Walker

While everyone was happy to put 2020 behind us, it is clear that COVID-19 is still going to be part of our lives in 2021. In light of the fact that an outbreak could happen at any time, the Government has outlined what assistance will be made available to businesses in the event COVID-19 Alert Levels need to be heightened - reminding businesses to be prepared should there be a resurgence of COVID-19 in the community.

In this article we explain what assistance will be available.

What is currently available at Alert Level 1

Currently businesses are able to utilise the Leave Support Scheme when employees who cannot work from home are required to self-isolate due to potential exposure to COVID-19, or they are considered “higher risk” if they contract COVID-19 when there is active community transmission. The Leave Support Scheme provides a fortnightly payment of $1,171.60 or $700 respectively for a full-time or part-time employee who is isolating.

Businesses with 50 or fewer employees can be eligible to apply for a Small Business Cashflow Loan. This scheme, administered by Inland Revenue, allows certain businesses to apply for a loan of up to $100,000. The maximum value of the loan available is $10,000 plus $1,800 per full time equivalent employee. Loans are interest free for a period of up to two years (if fully repaid in that time).

The Business Finance Guarantee is also available to provide greater confidence in business lending.

What will be available if there is a move to Alert Level 2

A new “Resurgence Support Payment” will be available should New Zealand, or any region/s within the country, move to Alert Level 2. This payment will be available to businesses which see a 30% or greater reduction in revenue as a consequence of the change in Alert Level. To determine whether this criterion is met, businesses will need to show a 30% reduction over a 14-day period following the change in Alert Level, as compared with revenue earned in the weeks immediately before the change in levels. The Resurgence Support Payment will be available to all businesses (including sole traders) that have been operating for six months or more, and the value of the payment will depend on the size of the organisation. Businesses will receive a payment of $1,500, plus an additional $400 per employee, up to a total of 50 FTEs. This means the maximum payment available will be $21,500.
In response to some issues identified through the wage subsidy scheme, it’s expected that some restrictions may be applied to the payment to ensure it is targeted. For example, applicants will need to be aged 18 years or older. We also expect more detailed guidance on measuring revenue - in particular a requirement to look at how business activity has been restricted rather than purely looking at invoices raised (which can be subject to manipulation).
The Resurgence Support Payment will provide an immediate cashflow boost to impacted businesses (after they have demonstrated that a revenue loss has occurred). The Resurgence Support Payment will be administered by Inland Revenue. It technically requires new legislation, and this is expected to occur in late-February 2021.

What will be available if there is a move to Alert Level 3 or 4

In the event Alert Levels escalate to Level 3 or higher there will be a new wage subsidy scheme put in place. Many of the terms and conditions are likely to be similar to those applied under the former schemes implemented in 2020, but there will be a difference to the length of the scheme and the frequency of payments. In particular:

  • A wage subsidy will be put in place if the Alert Level is raised to 3 or 4 for 7 days or more, in any part of New Zealand.
  • Support will be provided in two-weekly payments, for the duration of the Alert Level escalation, rounded to the nearest fortnight (e.g. if Level 3 were in place for 22 days, there would be a payment for 2 fortnights). This contrasts to the lump sum approach taken with the original Wage Subsidy (12 weeks) and the Wage Subsidy Extension (8 weeks).
  • The payment rate will remain $585.80 and $350 per week per full-time and part-time employee respectively.
  • Businesses will need to see a 40% reduction in revenue as compared to the typical fortnightly revenue during the six-week period immediately preceding the change in Alert Level.
  • Businesses will be required to provide evidence of the decline in revenue being due to the change in Alert Level (e.g. it was not an expected normal decline in revenue as a result of seasonally higher sales during the Christmas period).
  • Other requirements are expected to remain the same, in particular there will be a requirement to retain staff and pass on the subsidy amounts.
Other benefits to assist employees

In mid-February 2021 the Leave Support Scheme will be supplemented by a new Short-Term Absence Payment. This payment of $350 per eligible employee will be available to support employees who are required to stay at home while they await the results of a COVID-19 test but are unable to work from home. The payment will also apply to parents or caregivers who have dependents awaiting a test result, as well as self-employed workers.

This additional payment will be of most assistance for those employees who have used their sick leave entitlements. Employers will be able to apply for the Short-Term Absence Payment once in any thirty-day period per eligible worker (unless a health official or medical practitioner advises or requires the worker to re-test during that period). If the employee subsequently tests positive, they will be eligible for the Leave Support Scheme.

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

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