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COVID-19 Support Payments Explained

Tax Alert - March 2022

The COVID-19 Protection Framework Red Setting encourages workers to work from home where possible and also requires self-isolation in a number of circumstances. Anyone who has visited a city centre since late January 2022 will be able to attest that they are quieter than normal and impacting businesses that rely on foot traffic. While the ability to get a coffee without queuing or a seat in any restaurant without a booking is a bonus for those who are out spending, the reality is that it is unsustainable for the businesses. As a consequence, the Government has announced a new round of business support for businesses that have suffered a 40% or greater reduction in revenue. Rather than a new wage subsidy, the COVID-19 Support Payment (CSP) is in essence a new version of the Resurgence Support Payment that many businesses will be familiar with.

Eligible businesses will be entitled to a payment of $4,000, plus $400 per full-time equivalent worker (up to 50 FTEs), each fortnight for six weeks. The relevant eligibility criteria will need to be met for each of the three payments. The maximum entitlement will therefore be $72,000, or $24,000 per payment for an employer with 50 or more employees.

For businesses with low revenue, the amount of the CSP is capped at eight times the actual decline in revenue.

The CSP can be used to cover business expenses. GST registered recipients will need to return GST on the amount of CSP received but will be able to claim back GST input tax as the money is applied to business expenses.

Businesses who have faced a 40% reduction in revenue as a result of either the presence of COVID-19, public health measures to reduce the spread of COVID-19 or businesses circumstances that are reasonably likely to be as a consequence of COVID-19 could be eligible. There are several options to calculate the revenue loss and this is explained below.

Other criteria to be aware of include:

  • The business must have been operating since at least 16 January 2022;
  • The business must be viable and ongoing;
  • All reasonably practical steps must have been taken to minimise the decline in revenue;
  • COVID-19 Vaccine Certificate requirements must have been complied with;
  • For the first tranche of the CSP, an application can’t have been made for the Ministry of Culture and Heritage Grant for Self-Employed Individuals (as this provides separate grant funding for the arts, culture and heritage sector);
  • Commonly owned groups have specific rules for calculating the revenue drop, but in summary, the whole commonly owned group must have suffered a 40% revenue drop, and each business within the commonly owned group that has had a stand-alone 40% revenue drop can make a separate claim.

It is important to note that businesses that are able to operate under the Red setting of the COVID-19 Protection Framework but have chosen to close temporarily without taking all reasonably practical steps to minimise revenue loss will not be eligible.

A full list of eligibility criteria is available here.

The key issue for businesses will be to understand how to calculate whether the 40% revenue drop has been satisfied, and this is where it can start to get complicated.

There are two key numbers a business must establish:

  1. Revenue for a continuous 7-day period starting on or after 16 February 2022 (an end date has not yet been set, nor has the revenue loss period for the second or third payments)
  2. Revenue for a “typical” 7-day period in a six-week comparison period; either:   

a. 5 January 2021-15 February 2021; or

b. 5 January 2022-15 February 2022

“Typical” revenue is revenue that a business has earned during a 7-day period that is considered to be normal or representative of the businesses’ revenue. When determining typical revenue, businesses can apply a degree of pragmatism (ensuring it is documented); for example, revenue can be averaged over the 6-week period and a 7-day period chosen which is closest to the average revenue, or periods where there is no trading can be excluded (for example, the business was closed over the holiday period or for public holidays). Similarly, thought should be given to how events, such as school holidays or Christmas closedowns, influence “typical” revenue in the comparison period. The calendars below outline some events to be aware of when determining what may be the most appropriate comparison period.

When calculating revenue, this is straightforward for a business with daily sales. For businesses that invoice clients periodically, revenue should be determined by evaluating the activities the businesses carry out that they then bill clients for. Any passive income, including interest, dividends and all forms of commercial and residential rent are excluded from revenue calculations.

Inland Revenue is once again administering the scheme through the myIR system. Due to changes to how the revenue loss calculation is to be determined, there are different application dates. Businesses who are comparing revenue to 5 January – 15 February 2022 were able to start applying from 28 February 2022; those businesses who are wanting to compare revenue to the same dates in 2021 will be unable to apply until around Monday 14 March (this date may move forward depending on the time required for Inland Revenue to make necessary systems changes).

Applications will be open for at least six weeks.

Each of the three payments will need to be applied for separately, with a continued 40 percent reduction in revenue being required for each payment.

The Government has also announced some improvements to the Small Business Cashflow Loan Scheme. Businesses will be eligible to draw down an additional $10,000 and there will be more favourable no-interest periods.The Leave Support Scheme and Short-Term Absence Payment also remain available to support businesses whose employees are unable to work from home. You can read more about this business support here.

For more information about any of these topics, please contact your usual Deloitte advisor.

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