The following is to help you with the treatment of assistance payments received from the Government. As you will appreciate this is a moveable feast and as we receive more information or clarity, we will keep you informed. The following was a series of questions and answered received from the Inland Revenue that we hope will provide some clarity around the changes taking place. We have added some additional comments in red.
Q1. Is the wage subsidy payment subject to GST?
A1. No – An Order in Council is being drafted to treat it as exempt (Section 5(6E)(B)(iii GST Act) A new account code will need to be set up, we suggest it is called WAGES SUBSIDY – COVID 19. Please set this up as a GST exempt item in the Wages and Salary area of your chart codes. In this way it will net off against the wages you pay to staff in the event that you may pay more than the subsidised amount.
Q2. Is the wage subsidy paid to the employer taxable?
A2. No - It is excluded income (Section CX 47 ITA). Your accountant must be careful to exclude this from your taxable income when preparing your 2021 tax returns.
Q3. Is the wage subsidy deductible when paid by employer as part of wages to employee?
A3. No – it is not deductible Because the wages subsidy will be set off against wages paid to employees this will have the effect of making the pay-out of the subsidy amount not deductible.
Example, if employer decides to pay employee normal wages
1. Normal Gross Wages Paid = $1,000 Coded to Wages code
2. Subsidy Received = ($585) Coded to Wages Subsidy account
3. Pay out Normal Gross Wage = $1,000 Coded to Wages
1. Net Cost to Employer = $415 (Gross Wages less Subsidy, 1-2)
Q4. Is the wage subsidy taxable to employee?
A4. Yes – As it is included as part of their normal wages it is subject to the usual PAYE, Student Loan, Kiwisaver deductions, etc. We trust this explanation is self-explanatory.
Q5. Is the leave payment for self-isolation subject to GST?
A5. No – An Order in Council is being drafted to treat it as exempt (Section 5(6E)(B)(iii GST Act) No GST on self-isolation payments
Q6. Is the leave payment for self-isolation paid to employees or self-employed persons subject to tax?
A6. Yes – It is paid to replace taxable income so is subject to tax. We trust this explanation is selfexplanatory.
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