Am I Entitled to the Covid 19 Wage Subsidy in NZ?
These are confusing times!
We understand there is a lot of information out there and it can be hard to determine how you fit into the framework.
We answer some commonly asked questions below. Please contact us if you would like further information.
Have you received the wage subsidy you’re entitled to?
This article makes the eligibility criteria clear and easy to understand.
Perhaps you want to apply for the wages subsidy but you’re not sure if you can…
We’ll clarify this below.
Maybe you’ve received the funds but aren’t sure how to treat them from an accounting point of view…
Read on for clear advice on the GST treatment and income tax implications of receiving the covid-19 wage subsidy.
Have You Received The Wage Subsidy You’re Entitled To?
WINZ paid $5.3bn in wage subsidies in three weeks, covering 876,000 employees. This means they had very little time to review applications.
As 2020 tax returns are filed and compared to wage subsidy applications, questions will surely be asked.
Make sure you know what you are and are not entitled to.
If you have applied for a wage subsidy, be prepared for a review.
To qualify for the subsidy:
- Your revenue for one month from January to June 2020 must be down by at least 30% on the relevant month last year.
Keep workings to show this.
- The revenue reduction must be due to covid-19.
If you had already stopped trading for other reasons, you are not eligible.
Keep evidence of covid-19’s effect on your business.
- You must have taken active steps to mitigate the impact of covid-19 on your business.
Have evidence that you have done this.
This can include:
- Seeking advice from your business advisor
- Applying to your bank for relief
- Injecting personal funds into the business
- Preparing a cash-flow forecast to plan your business survival
If you have not applied, do you know whether you can?
Every business that qualifies as above, can apply for the subsidy. Below are some clarifications.
- If you are a shareholder-employee of your own company, the company can apply to cover your shareholder salary.
Use the employer form.
- If there are multiple shareholder-employees of your company, the company can apply for all of them.
Do you have a spouse who returns a shareholder salary in their tax return?
- Your company can apply for all employees including shareholder-employees and PAYE staff.
It cannot apply for contractors, however.
Contractors can apply themselves as sole-traders.
- If you are both a shareholder-employee and self-employed, you can apply for both businesses.
Your company can apply using the employer form, and you using the self-employed form.
You must apply for the appropriate hours: more or less than 20 hours per week.
It may be hard to justify working over 20 hours per week for two roles such as an independent contractor and a shareholder-employee.
Accounting for the Covid-19 Wage Subsidy
The tax treatment of the wage subsidy has caused some confusion. To clarify:
- The subsidy received by a business is exempt from GST.
If you do your own bookkeeping, I suggest creating a new income code, or using Sundry Income, and coding it with no GST.
- The subsidy received by an employer is exempt from income tax.
Wages subsequently paid to employees are not tax deductible to the business to the extent they are covered by the subsidy.
Any excess cost to the business is tax deductible as per normal.
- Wages are still taxable to the employee and subject to PAYE as normal, even where covered by the subsidy.
When a sole trader receives the subsidy, it is taxable income.
It will form part of their taxable business profit.
We can help. Give us a call to discuss your situation..