24 Mar 2020
IRD letterhead

COVID-19 – Relief scheme tax treatment

Inland Revenue has released some much needed information about the tax treatment of the wage subsidy and leave payment scheme.

Tax Treatment of Wage Subsidy:

  • It is not subject to GST. An order in Council is currently being drafted to treat it as exempt (Section 5(6E)(B) (iii GST Act))
  • The wage subsidy paid to the employer is not taxable. It is excluded income under Section CX 47 Income Tax Act
  • It is not deductible when paid by the employer as part of wages to employees
  • It is taxable for the employee. It is included as part of their normal wages and subject to PAYE, Student Loan, Kiwisaver deductions etc

Overall: nil overall impact to employer. Payments taxed as normal for employees.

Tax Treatment of Leave Payment Scheme:

  • The leave payment is not subject to GST. An order in Council is being drafted to treat it as exempt (Section 5(6E)(B) (iii GST Act))
  • The leave payment for self isolation paid to employees or self-employed persons is subject to tax as it is paid to replace taxable income

Overall: nil overall impact to employer (taxable and deductible for employer). Payment taxed as normal for employee.

If you’re reconciling in Xero, please reconcile to ‘Other Income’ or similar and ensure it’s set to ‘No GST’ – we’ll pick it up from there. If you’re unsure, use the discuss tab and we can sort it. More info on the tax treatment from Inland Revenue here

What do I need to do?

We have a lot of questions coming about how much you’re required to pay your employees at this time. While there is no one correct answer, if you are receiving the wage subsidy package it stipulates as an employer, you do all you can to maintain your employees at 80% of their ordinary income.

Before taking the seemingly urgent actions being driven by the heat of the situation, it’s important to understand your financial position, your possible cash flow, and the impact of time on the continuity of your business. There is always more than one option and it’s really important to consider them.

Talk to your advisers, accountants, business partners, bankers, industry experts – banding together will give you the best chance.

We’re now scattered around the country working from make-shift offices, but we’re geared for this and we are here to help.

Get in touch.