Financial Implications of COVID 19 (002)

COVID-19 FINANCIAL IMPLICATIONS The following is a summary of the latest developments relating to the financial implications of the Covid-19 crisis, as at 26 March 2020. Note that the situation is changing daily so the information below may become out of date, or incomplete, at any stage.

GOVERNMENT ASSISTANCE AVAILABLE The government is providing assistance to businesses affected by Covid-19 which some private practice may be eligible for. The main areas of immediate assistance relate to wage subsidies and leave payments:

Wage Subsidy To access the wage subsidy a medical practice need to have a 30% downturn in actual or predicted revenue over the period of a month when compared with the same month last year, and that decline is related to COVID-19. If based on your current plans you believe the total income into your practice will drop by 30% or more, then you should consider making an application for this funding.

The wage subsidy is a lump sum and covers 12 weeks per employee at the flat rate of: • •

$585.80 for people working 20 hours or more per week; $350.00 for people working less than 20 hours per week.

To access the wage subsidy employers are required to make their best efforts to retain employees for the full 12 weeks and pay them at least 80% of their usual pay for that period.

We understand the subsidy is being paid out in some instances within 48 hours of application. Note, Inland Revenue will be reviewing some requests at a later date, and in some instances where a business has in effect claimed the subsidy in error, the subsidy will need to be repaid.

The application can be made using the following link:

https://services.workandincome.govt.nz/ess/employer_applications/new

Leave Payment Practices are likely to have staff who are unwell or who are needing to self isolate. The Government is providing a subsidy to any employee who falls ill with Covid-19 or must self-isolate (as mandated by the Health Department). Payments under this category are at the same rates as the wage subsidy rates (above). Any person in self isolation and unable to work from home will be eligible for payments for up to 14 days, whereas those who have the virus (or are caring for another with the virus) are eligible for payments for as long as they are ill.

The leave payment qualifications are as follows: COVID-19 Leave Payment covers full-time, part-time and casual employees, and contractors who are legally working in New Zealand and who: •

• •

need to self isolate in line with Ministry of Health Guidelines and have registered as needing to self-isolate with Healthline, cannot work from home and their self-isolation is not because they left New Zealand since the travel restrictions on 16 March 2020 and have since returned, or cannot work because the person has been diagnosed with COVID-19, or cannot work because they are caring for dependents who are required to self-isolate or who are sick with COVID-19

Employers apply for this funding for each effected employee. As people may be required to selfisolate more than once, employers will be able to apply for this on an ‘as needed’ basis. It can be paid for the entire period an employee is sick (or looking after a dependent person who is sick) with COVID-19, but the employer must reapply every 14 days.

Applications are made using the same process as the wage subsidy:

https://services.workandincome.govt.nz/ess/employer_applications/new More detailed information on the criteria for applications can be found at:

https://workandincome.govt.nz/products/a-z-benefits/covid-19-support.html#null Any funds received through these applications are not subject to GST and for tax purposes are treated as a reduction of the wages being paid to employees. All payments made by your practice to an employee are to have tax (PAYE) deducted in the normal manner.

INLAND REVENUE DEPARTMENT PAYMENTS AND RETURNS You should continue to file all PAYE, GST and all other returns on time where possible. However, the Inland Revenue Department have indicated that late payment and interest penalties will be waived for businesses directly impacted by Covid-19. As such, if you are concerned about cashflow within your practice, payments to the Inland Revenue Department can be deferred. An application for penalty and interest remission will need to be made at some future point, and the core tax paid.

https://media.ird.govt.nz/articles/inland-revenue-updated-advice-to-businesses/

BUSINESS FINANCE GUARANTEE SCHEME The Business Finance Guarantee Scheme will provide short-term credit to cushion the financial distress on small and medium-sized firms affected by the COVID-19 crisis. This scheme applies to solvent businesses (i.e. where total assets exceed total liabilities) with turnover of between $250,000 and $80 million. There is a limit of $500,000 per loan. The loans will be for a maximum of three years and are expected to be provided by the banks at competitive, transparent rates. Full details of the application process are yet to be released.

These loans are designed to cover businesses for the temporary cashflow and profitability implications caused by the crisis.

CASHFLOW PRESERVATION AND PLANNING All businesses impacted by the crisis are being advised to preserve cash and reduce costs due to the uncertainty of how long this crisis will continue for. Many businesses are contacting landlords requesting rent reductions or deferment of rent payments and banks are willing to change both personal and business borrowings to ‘interest only’ or in some cases defer payments entirely.

Consider cancelling or pausing services that are no longer being received in full (for example, cleaning services), and review automatic payments relating to any items/services that you currently don’t need or won’t be receiving. Payment of GST, income tax and PAYE can also be deferred if required.

It is suggested that businesses map out their cashflow requirements, estimating income and expenses on a daily basis, so they can determine any shortfall in advance and plan accordingly.

EMPLOYMENT MATTERS If considering making employees redundant, forcing employees to take annual or unpaid leave, reducing hours or making other decisions that will impact directly on your employees, we suggest getting specific advice relevant to your circumstances prior to taking action.

CHANGES TO TAX DEDUCTIONS While of less dramatic and immediate impact, the following tax changes have been announced in response to the crisis: Immediate low-value asset write-offs for more assets allowed Taxpayers are currently able to deduct the full purchase price of assets that cost less than $500.

However, for assets over $500 deductions for the purchase price is spread over the life of the asset.

This $500 threshold has been temporarily increased to $5,000 for assets purchased in the 12 months from 17 March 2020. From the 2021/22 income year, the existing $500 threshold for an immediate write-off will be increased to $1,000 on a permanent basis. Note, where assets are purchased on the same invoice and fall into the same asset category, the total invoice is the amount considered, not the individual assets on the invoice. For example, if a business purchased 7 laptops @ $1,000 each and the total invoice was $7,000, none of the laptops would qualify as a low-value asset.

Depreciation on non-residential buildings restored Depreciation deductions for non-residential buildings have been reintroduced. This is intended to support businesses’ cash flow in the near-term and assist with the broader economic recovery by stimulating business investment in new and existing buildings.

Provisional tax threshold increased The threshold for having to pay provisional tax has increased from $2,500 to $5,000. The increase in the tax threshold will remove smaller businesses from the provisional tax regime.