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“This is going to hurt”. That’s the message from New Zealand Prime Minister Jacinda Ardern as the country prepares for the consequences of the coronavirus outbreak.

To date, New Zealand has just 8 confirmed cases and has been quick to go into its own “self-isolation” so that its health sector is not overwhelmed.

Labelled the “Business Continuity Package”, the economic package is clearly focused on jobs. The New Zealand Labour government has a very different set of priorities from Australia’s Liberal government.

Having said that, the government has announced that it is preparing to spend big in order to reduce the impact on the New Zealand economy.

On a per capita basis they will be borrowing and spending more than anyone else in the world, over NZ$12.1 billion. And a significant amount of it will be spent within the next few months.

While it had been expected that the New Zealand economy would reduce by as much as 3%, early indications are that this could restrict their slowdown in the economy to less than 1%.

Wage Subsidies

Of the NZ$12.1 billion, nearly half – NZ$5.1 billion – will be provided by way of wage subsidies.

The New Zealand government will be providing a wage subsidy to employers of up to $150,000 per business over the next 12 weeks in order to keep employees on.

This compares to Australia’s stimulus package allowance of $25,000.

Weekly payments will be capped at $585 per full-time employee and $385 per part-time employee. In order to access this subsidy, businesses will need to show a 30% reduction in revenue for any month between January and June when compared to the same month in the previous year. This subsidy will be available from Tuesday, 24 March 2020.

A website to apply for the money is currently being set up and payments may be available within a week. Click here for a link to the website. We can assist with applications.

The government expects up to ½ of all New Zealand businesses to be eligible for, and to take up the offer. Payments can be expected to be received by businesses within 5 days of making the application.

The government expects companies to meet their obligations under the employment agreements and we cover these general obligations in our article on Obligations To Pay New Zealand Staff Impacted By Coronavirus – Sick or Self-isolation. However if an employee is not entitled to paid sick leave, the government will subsidise employees to ensure they are not financially disadvantaged during the 14 day self-isolation period.

Furthermore, workers who contract coronavirus will continue to receive their wages, subject to any paid sick leave that is due to them, for as long as they are ill, as a result of the stimulus package.

Tax Changes

Further to the announcements made last week (which we included in a previous blog post), the government also intends to pass legislation which will give Inland Revenue discretionary powers to waive Use of Money Interest charges for late tax payments that have been brought about as a result of a downturn in trade due to the coronavirus outbreak. That concession can apply to all tax payments due on or after 14 February 2020.

New Zealand will introduce an immediate deduction for asset purchases that is still a far cry from the incentives allowed in Australia. The current limit of $500 will be immediately increased to $1,000 and then further increased to $5000 for the 2020/21 tax year.

Remember that New Zealand’s standard tax year commences 1 April 2020 so the larger allowance will effectively come into play in a couple of weeks time for most businesses. It will then reduce again to $1,000 after the 2020/21 income tax year however that may well be reviewed.

Provisional (pay-as-you-go) tax will apply where the previous year’s residual income tax amount exceeds $5000. The amount is currently $2500.

So more smaller businesses will be exempted from paying provisional tax for 2020/21.

The government will also be reintroducing the depreciation claim on buildings used for commercial purposes with a view to encouraging investment in industrial and commercial buildings. The ability to claim depreciation on buildings was removed a number of years ago.

Claims of 2% per annum will be able to be deducted for depreciation on commercial and industrial buildings. The depreciation claim is not being reintroduced for residential properties.

With the exception of the Use of Money Interest concessions, the other tax breaks will be available to all businesses irrespective on if they are affected by the Coronavirus outbreak. Therefore these apply to all businesses:

  • Provisional tax threshold changing from $2,500 to $5,000
  • Low value asset write-off increased to $5,000 for 2020/21
  • Depreciation on buildings used for commercial purposes

We have previously covered other measures available to Inland Revenue as a result of the Coronavirus outbreak. Click here to read it.

You can give us a call on 1300 791 600 for a quick chat.

 

The information in this article is indicative of NZ tax rules and changes and not intended to be complete for all intents or purposes and does not constitute advice. It is recommended that you obtain professional advice, suited to your particular circumstances, from us before acting on anything you read.