The rush to closedown our offices and shift to working from home is now over for most of us. We hope that everyone was able to do what they needed to. Business goes on but in a different way to what we are used to. Perhaps there is an opportunity to take stock of the situation?
Many of our clients have faced complete shutdowns of their businesses and we are now looking forwards to assisting them with cashflow planning for the next month or so, and then how to restart their businesses once the lockdown is over.
There is a base level of government support available at the moment for employees, contractors etc, and likely bank support to work through for solvent businesses. We expect that there will be a need for further government assistance, as a heavy burden is going to be borne by businesses in the coming months and years.
Rent Payment on Commercial Leases During the Lockdown
As we start day two in lockdown, a question facing many businesses is “do we need to pay rent for premises we cannot use during the lockdown?” The answer to this question will depend on what terms were agreed between the landlord and the tenant so the first steps is to look at the lease, as every lease will be different. Even if your lease is on a standard lease, standard terms can be deleted or modified by the further terms.
The more recent standard form ADLS leases have a “No Access in Emergency Clause”, which provides that the tenant will only be required to pay “a fair proportion of the rent and outgoings” for a period starting on the date the tenant becomes unable to access the premises “to fully conduct the tenant’s business from the premises until the inability ceases.” What will be fair will vary from business to business.
The no access clause was introduced in response to issues that arose following the Christchurch earthquakes so, if you are on an older version of the standard ADLS lease, the no access clause may not be included in your lease. Similarly, if you have a bespoke lease, the lease may not deal with access issues. If you have questions relating the terms of your lease, we suggest you contact your lawyers.
We recommend that both landlords and tenants contact their insurance company or insurance broker to check whether they have insurance that will cover some or all of the rent payable during the lockdown. We also urge landlords and tenants to start discussions about the payment/non-payment of rent during the lockdown period at an early stage.
Duncan Cotterill posted a helpful article today, which you can read here
Wage Subsidy Update
A number of our clients have received the Wage Subsidy, which is assisting them to fund their payroll obligations. Processing time appears to be about 4-5 working days from application.
The $150,000 cap on the wage subsidy has been removed. For those that applied when the cap was in place and hit the cap, we understand that there is no requirement to apply again for the top up above the $150,000. The government will work out how much additional is payable to your business from the employee data you provided in your application.
Tax Treatment of Wage Subsidies
We have seen reliable commentary that wage and leave subsidy receipts are not taxable to the employer and are not deductible for the employer when paid to employees (or repaid).
Payments to employees (including self-employed) remain taxable to them and subject to PAYE, KiwiSaver and other relevant deductions.
GST is not payable on receipt of the subsidies.
Business Loans and the Wage Subsidy
On Tuesday, 24 March 2020, the Government outlined its business finance support scheme. You can read the release from the Beehive here
It made a further announcement on 25 March 2020 that includes:
Many of our clients have faced complete shutdowns of their businesses and we are now looking forwards to assisting them with cashflow planning for the next month or so, and then how to restart their businesses once the lockdown is over.
There is a base level of government support available at the moment for employees, contractors etc, and likely bank support to work through for solvent businesses. We expect that there will be a need for further government assistance, as a heavy burden is going to be borne by businesses in the coming months and years.
Rent Payment on Commercial Leases During the Lockdown
As we start day two in lockdown, a question facing many businesses is “do we need to pay rent for premises we cannot use during the lockdown?” The answer to this question will depend on what terms were agreed between the landlord and the tenant so the first steps is to look at the lease, as every lease will be different. Even if your lease is on a standard lease, standard terms can be deleted or modified by the further terms.
The more recent standard form ADLS leases have a “No Access in Emergency Clause”, which provides that the tenant will only be required to pay “a fair proportion of the rent and outgoings” for a period starting on the date the tenant becomes unable to access the premises “to fully conduct the tenant’s business from the premises until the inability ceases.” What will be fair will vary from business to business.
The no access clause was introduced in response to issues that arose following the Christchurch earthquakes so, if you are on an older version of the standard ADLS lease, the no access clause may not be included in your lease. Similarly, if you have a bespoke lease, the lease may not deal with access issues. If you have questions relating the terms of your lease, we suggest you contact your lawyers.
We recommend that both landlords and tenants contact their insurance company or insurance broker to check whether they have insurance that will cover some or all of the rent payable during the lockdown. We also urge landlords and tenants to start discussions about the payment/non-payment of rent during the lockdown period at an early stage.
Duncan Cotterill posted a helpful article today, which you can read here
Wage Subsidy Update
A number of our clients have received the Wage Subsidy, which is assisting them to fund their payroll obligations. Processing time appears to be about 4-5 working days from application.
The $150,000 cap on the wage subsidy has been removed. For those that applied when the cap was in place and hit the cap, we understand that there is no requirement to apply again for the top up above the $150,000. The government will work out how much additional is payable to your business from the employee data you provided in your application.
Tax Treatment of Wage Subsidies
We have seen reliable commentary that wage and leave subsidy receipts are not taxable to the employer and are not deductible for the employer when paid to employees (or repaid).
Payments to employees (including self-employed) remain taxable to them and subject to PAYE, KiwiSaver and other relevant deductions.
GST is not payable on receipt of the subsidies.
Business Loans and the Wage Subsidy
On Tuesday, 24 March 2020, the Government outlined its business finance support scheme. You can read the release from the Beehive here
It made a further announcement on 25 March 2020 that includes:
- a six month principal and interest payment holiday for mortgage holders and small and medium sized enterprises (SMEs) businesses whose incomes have been affected by the economic disruption from COVID-19, and
- a $6.25b Business Finance Guarantee Scheme for SMEs, to protect jobs and support the economy through this unprecedented time.
You can read the release from the Beehive here
Details of the recently announced Business Finance Guarantee Scheme is expected in the next few days.
As is normal with applying for loans, you should also consider the ability to repay the loan over the 3 year term, as any new lending will be only 80% guaranteed by Government. We recommend that care is taken with how much your business borrows, particularly for those businesses that were already experiencing difficulty complying with their loan repayment obligations.
The Wage Subsidy requires you use your best endeavours pay the employees you are receiving the wage subsidy for at least 80% of their regular income for the subsidy period. It also requires you to “take active steps to mitigate the impact of COVID-19 on your business, including speaking to your bank, and requires businesses to repay the subsidy if:
Details of the recently announced Business Finance Guarantee Scheme is expected in the next few days.
As is normal with applying for loans, you should also consider the ability to repay the loan over the 3 year term, as any new lending will be only 80% guaranteed by Government. We recommend that care is taken with how much your business borrows, particularly for those businesses that were already experiencing difficulty complying with their loan repayment obligations.
The Wage Subsidy requires you use your best endeavours pay the employees you are receiving the wage subsidy for at least 80% of their regular income for the subsidy period. It also requires you to “take active steps to mitigate the impact of COVID-19 on your business, including speaking to your bank, and requires businesses to repay the subsidy if:
- the business was not or stopped being entitled to the Wage Subsidy,
- the application contained false or misleading information, or
- the business receives business interruption insurance.
With the evolving funding situations and every business being in differing positions, Directors would be prudent to monitor/review (we suggest before each pay date) whether the business remains entitled to the Wage Subsidy it has received and, if concerned, seek advice.
More to Come
Along with further guidance and detail about the finance packages expected later this week, on Monday 23 March the Government announced that urgent work is underway on new income support measures for all workers affected under Alert Level 4. You can read the release from the Beehive here
While we are physically distancing, we are staying connected. If you need our assistance, reach out. We’re here to help.
The Team at MVP
More to Come
Along with further guidance and detail about the finance packages expected later this week, on Monday 23 March the Government announced that urgent work is underway on new income support measures for all workers affected under Alert Level 4. You can read the release from the Beehive here
While we are physically distancing, we are staying connected. If you need our assistance, reach out. We’re here to help.
The Team at MVP