As part of the New Zealand Governement Stimulus Package for New Zealand businesses we have previously advised that wage subsidies of up to $585 are available for full-time workers working more than 20 hours per week and $385 per week for part-time workers working less than 20 hours per week. Click here to read more
NZ Wage Subsidies Will Not Be Taxable
We are aware that there are current legislative changes being made through New Zealand Parliament which will ensure that these wage subsidies will not be taxable. It will be included as “excluded income” under section CX 47 of New Zealand’s Income Tax Act.
Accordingly, wage subsidies paid by the employer as part of the wages to an employee will not be tax deductible either.
This will ensure the subsidy is tax neutral, neither assessable nor deductible. Only wage payments made in excess of the wage subsidy will be deductible.
Accounting For The Wage Subsidy In Your Accounting Package/System
Accordingly, we recommend that if you are in receipt of wage subsidies, you code these to a “wage subsidy receipts” or similar account and ensure that payments made through the payroll system relating to the wage subsidy are expensed to a “wage subsidy payments” account to allow easier reconciling come income tax time.
Please note that the wage subsidy will be taxable to the employee as it forms part of their wages. It should not be treated any differently in the hands of the employee to your normal payroll.
As it forms part of the usual wages and it is subject to PAYE withholdings, it will also be subject to any student loan, Kiwisaver deductions and any other amounts that are based on the gross wages of an employee.
Coronavirus Leave Payment Scheme
Where staff cannot present themselves at the workplace because of Coronavirus, perhaps because they have contracted the virus or are in self-isolation, and they have used up their paid sick leave entitlement, the NZ Government will also be providing a wage subsidy.
The leave payment will be subject to PAYE withholdings in the normal way where it is paid to replace their taxable income (wages).
New Zealand GST
There is also current legislation in place to ensure these wage subsidies will not be subject to GST. The receipt will be treated as exempt from GST under section 5 (6E) (B) (iii) of New Zealand Goods and Services Tax Act.
It is important that you continue to file your employer information with Inland Revenue after each pay day. In fact, it is even more important than ever as these details will assist with New Zealand businesses applying for the new wage subsidy.
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.