TAX TREATMENT OF THE WAGE SUBSIDY

Wage subsidy and leave payment schemes

There is a lot of information out there at the moment on COVID-19 and the Wage Subsidy, etc. but very little guidance on how to get staff paid through this lockdown period and then ongoing from there.

The goal at this time is to try and keep as many people paid and employed as possible and for your businesses to bounce back. However, be aware that if you do apply for the subsidy for staff members, you need to make all best efforts to keep any staff in employment for the next 12 weeks at a minimum of 80% of their previous income, if not at 100%.

The ideal is that you keep their employment at their current hours and terms, pass the subsidy on to them and top it up with usual wages to 100%.  However, with reduced revenue, work, etc., this may not be practicable. You may need to consider a reduction to at least 80% income.


Tax treatment of the wage subsidy:

  •  It is not subject to GST. An order in Council is currently being drafted to treat it as exempt
  •  The wage subsidy paid to the employer is not taxable. It is excluded income under Section CX 47.
  • 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.

 

Our advice is to try and ride this out where you can and keep your team on-board. It’s unsettling at the moment, but you have options for your business and for your team. All of you will no doubt be feeling incredible levels of stress.

Inland Revenue is not administrating the wage subsidy or leave payment scheme. If you would like more detail about these, please refer to: www.workandincome.govt.nz/covid19support