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COVID-19: Answers to Tax Obligations on Wages and Leave Subsidy

March 30, 2020

We have received additional clarification from Work & Income and Inland Revenue around the current wage subsidy which the Government made available due to disruption from Covid-19.

It has been confirmed that the subsidy payment for both Leave and Wages Subsidy is Exempt from GST and Income Tax for the employer.  This should be treated as excluded income.  As the income is excluded there will also be no income tax deduction for the payment of subsidies onto employees.  This means that if you have staff that you are paying the wages subsidy plus a top up you need to keep track of the subsidy payments made as we will need to exclude these when preparing your income tax returns.  From a practical point of view we would recommend coding the subsidy received to sundry income with no GST in your accounting system. Then when we prepare your income tax returns we will ask for the number of full and part time staff you paid during the 12 weeks you received the subsidy and adjust your tax return accordingly.

Payment of the wages subsidy onto employees along with the top up to 80% of their wages is counted as income to the employee and subject to the usual deductions of PAYE, Kiwisaver, student loans and child support. This means you should process through your payroll as normal.

Payment to employees of the leave subsidy will also be income to the employee and should be put through the normal Payroll process with PAYE deducted.

More details are included in the following link - https://www.ird.govt.nz/Updates/News-Folder/covid-19-novel-coronavirus---your-questions-answered

If you have any questions regarding the tax status of the subsidy payments please contact your usual CT advisor.

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