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COVID-19 wage subsidy: tax consequences

April 7th, 2020

Chris Lynch, Managing Director

Dear all,

COVID-19 wage subsidy: tax consequences

The Government’s 12-week wage subsidy (available for both employees and the self-employed) is paid in one lump sum to the employer.

The tax treatment for the employer is as follows:

  • the lump sum is excluded income

  • no GST applies to the lump sum receipt
  • when the payment is passed on to employees (either in one lump sum or spaced out so that it is paid as part of the employee’s usual wage payment cycle) no deduction can be claimed
  • PAYE must be deducted.

The tax treatment for the employee is as follows:

  • the payment is taxable remuneration and subject to PAYE, ACC levies, KiwiSaver contributions and student loan repayments at the date of payment.

The payment is also a taxable receipt for the self-employed, shareholder-employees, partners in a partnership and sole traders.

If the wage subsidy is being paid in one lump sum (or other than according to the employee’s usual pay cycle) this should be discussed with the employee, as adverse tax consequences could result. 

For example, if the payment was made in one lump sum before 1 April 2020, this could push the employee into a higher tax bracket and/or could affect their eligibility to receive family tax credits and other entitlements.

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Chris Lynch, CA

Managing Director, Lynch & Associates Limited

Get in touch by Email or Phone: +64 9 366 6008

Chris is the founding Director of Lynch & Associates Limited.

He qualified as a CA in 1973 and is a full member of the College of NZICA now merged with CAANZ. His expertise is in the areas of tax, accounting, business development, forecasting, and auditing. He has a clear focus on adding value to his clients lives and businesses and seeing the people behind the numbers.

Chris experience includes working as a CFO and company secretary for some of New Zealand’s leading companies before starting his own CA firm in 1999. In his previous roles Chris has worked in the wool, dairy, engineering FCG, banking and investment banking and stock broking industries.

Today he uses this vast experience to assist his clients add value to their businesses and personal lives.