The Week in Tax; home office payments clarified, Resurgent Wage Subsidy, reshaped Business Finance Guarantee scheme, SME cashflow scheme, and tax pooling

In last week's podcast I did a refresher on the payments to employees who were working for home and a reminder about Inland Revenue Determination EE002, which covered the payments from employers to employees. Now, I noted that that determination only covered the period up until 17th of September 2020, and I suggested that Inland Revenue probably needs to issue an extension to it.

Lo and behold, later that day, that's what happened. Determination EE002A has now been issued. This is a variation to the previous determination and now applies to payments made by employers for the period from 18th September 2020 through to 17th March 2021. So that's great to see that come through from Inland Revenue.

The Determination includes a couple of interesting comments from Inland Revenue. Firstly,

The Commissioner is currently considering issuing a public statement dealing with the tax implications of having employees working from home as a, “new way of working” rather than being limited to the enforced way of working occurs during the lockdown period of the COVID-19 pandemic.

Now, this public statement won't be ready for publication before 17th September so Inland Revenue has decided to continue to allow employers and employees to use the approach set out in the previous determination.

Secondly, what Inland Revenue has also done is remove the requirement that the payment must relate to relate to an expenditure or loss incurred by the employee as a result of the employee being required to work from home because of the COVID-19 pandemic. So I guess you could say it's a relaxation of the rules, but it's also about Inland Revenue recognising that work habits are changing. And the previous position with a flat out prohibition on employee deductions and the complications that this led to are going to need to be addressed. So there's obviously something new in the pipeline, and I'll bring it to you when that turns up.

Moving on, in other COVID-19 related news this week, we've got a two week Resurgence Wage Subsidy payment to be available nationally for employees and self-employed who are financially impacted because of the resurgence of COVID-19. To be eligible, your business must have experienced a minimum 40% decline in actual predicted revenue for a 14 day period between 12th August and 10th September compared to the previous similar period last year.

You can't receive this Resurgent Wage Subsidy at the same time as other COVID-19 payments for the same employee. But once that those existing payments end you can apply for the Resurgent Wage Subsidy.  Applications are open from, from one p.m. today, 21st August through to 3rd September 2020. So that's very helpful.

The return of the virus in Auckland has had ripple effects as everyone is now well aware.

Tourism from around the country is driven to some extent by Aucklanders travelling around the country. And therefore, it's not unreasonable that not only those businesses affected in Auckland by the move to Level 3 should be supported, but also those outside Auckland.

In a related move, the Business Finance Guarantee Scheme has been reshaped.

Now, this was the first attempt by the government to give financial support during the pandemic but the take up of this has been very low. At the moment, I understand $150 million have been lent although the banks apparently had put aside something close to $6 billion.

Now, what has been done is to make the scheme a little easier to access. Credit is now available for general purpose borrowing and capital purchases or projects that might be related to COVID-19. The revenue limits of whom can apply have been extended from $80 million per annum to $200 million per annum. The loan limit has gone up from $500,000 to $5 million and the loan term has also been increased from three to five years. So you have up to five years to repay the loan.

The scheme continues to have the government underwriting the default risk up to 80% of the loan. Now, no personal guarantee is required for loans under the scheme which is obviously helpful.  All lending decisions, are made by the banks and are obviously subject to commercial rates of interest. In other words, loans under the scheme are pretty typical bank loans.

One of the drawbacks for small businesses that the Business Finance Guarantee Scheme had and probably still does to a large extent, is the amount of information that's required to support the application for small businesses. That means pulling together a lot of information quickly and using accountants and other advisers to help them do so. That's not always the most practical approach for smaller businesses.  That's why the Small Business Cashflow Scheme had a huge take up because it was more easily accessible with fewest fewer lending conditions. Yes, the lending limits were much lower. But the point was that it was very readily and quickly available.

And for those who are eligible to apply for the Small Business Cashflow Scheme applications are still available open right up until 31st December 2020. So just a quick recap on eligibility for the Small Business Cashflow Scheme.  You must have been eligible to apply for the original wage subsidy. That is you have to show at least a 30% percent drop in income or predicted income compared with the same period 12 months ago. The maximum size of the company organisation that can apply is 50 employees.

Under the scheme maximum amount of the loan is $10,000, plus up to $1,800 per full time equivalent employee. And if you repay the loan within 12 months, it's interest free, otherwise, a 3% interest rate applies.  I’m hearing from other colleagues and tax agents that smaller and micor businesses made extensive use of the scheme, which is hardly surprising. It is a fairly flexible regime designed to reach smaller businesses.

And finally, just like the seasons, Provisional Tax has rolled around. The first instalment of Provisional Tax for the year ended 31 March 2021 is due next Friday, 28th August.  A quick reminder that Provisional Tax is due if your residual income tax now exceeds $5,000. Otherwise, you can drop out of the regime.

But there's a caveat to this. If it turns out that your residual income tax does exceed $5,000 in this year and you would have been liable to pay Provisional Tax under the previous $2,500 limit, then use of money interest at 7% will apply from 29th August.

The main thing here is to check how cash flows and are going and probably err on the side of caution here.  And a good thing to do in these very uncertain times if you're paying substantial amounts of provisional tax, I think that's anyone paying more than $60,000, you should really be making use of tax pooling. It gives you a lot more flexibility. You've also got to consider any tax losses which may be available. And, of course, the impact on your business of these moves to various Alert Levels.

The key thing, as always, with Provisional Tax is if you think you're going to struggle with this, get in front of Inland Revenue straight away and set up an arrangement plan.  At the moment, Inland Revenue is still being flexible and willing to cooperate in helping companies and businesses manage their cash flows and their tax payments. But sooner or later, their patience will wear thin. And at that point, you don't want to be on the wrong side of the border with Inland Revenue, so to speak.

Well, that's it for this week. I'm Terry Baucher. And you can find this podcast on my website www.baucher.tax or wherever you get your podcasts. Thank you for listening. Please send me your feedback and tell your friends and clients.  Until next week. Ka kite āno.

This article is a transcript of the August 21, 2020 edition of The Week In Tax, a podcast by Terry Baucher. This transcript is here with permission and has been lightly edited for clarity.

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