Taxable Treatment of the Wage Subsidy
This is a unique situation that continues to change very rapidly. We recognise that it raises a number of questions and concerns for people - especially in the employment space. We want to assure you that responding to the queries we are receiving is one of our highest priorities, however, there could be a delay in our response times as we work through each scenario. Please note that the subsidies aren’t coming from IRD and that is why we are only now finding out how they are managed tax wise. The consensus was, they were all tax free, but the different subsidies are treated slightly differently. Trying to navigate and advise you on how the new subsidies work, eligibility and taxable treatment is our number one priority. Wage Subsidy Paid for employees: • It is not subject to GST. • Due to the lump sum payment being paid out at once, we suggest coding the entire subsidy to the balance sheet (create a new current liability code ‘Wage Subsidy’) and at the end of each month journal out that month’s portion of the subsidy to the wage expense code. That way the subsidy and wages paid are reflected in the correct month and correct financial year. As you don’t want the full subsidy payment showing in your 2020 financial year / all in the one month. • The wage subsidy paid to the employer is not taxable (by coding the paid wages to the wages expense code you offset the subsidy you receive, effectively having a nil effect on the profit and loss report i.e. not paying any tax on the subsidy). • It is taxable for the employee. It is included as part of their normal wages and subject to PAYE, Student Loan, KiwiSaver deductions etc Wage Subsidy Paid for self employed • It is not subject to GST. • Code the full lump sum payment to Misc Income and/or Sundry Income. Your accountant will code it to the correct financial year, if applicable. • It is taxable to the self employed person and is included in the end of year accounts. Leave Subsidy: • The leave payment is not subject to GST. • The leave payment for self-isolation paid to employees or self-employed persons is subject to tax as it is paid to replace taxable income.(please code to a misc income code with NO GST) Please be assured that we, at Sass are doing our very best to bring you up to date, correct information as it becomes available to us. Don’t forget if you need help with the subsidies, you can call your Account Manager or Accountant direct. If you need help with a employment question, you can phone Lisa direct on her DDI – 928 4277.