Xero Online Accounting Software

COVID 19 - Business Recovery with NZ Govt Assistance
COVID 19 Government with IRD

COVID 19 Government with IRD

COVID 19 - Wage and Self Employed Subsidys:
Wage Subsidy as at 31 March 2020

We have found that there is some confusion for business owners around the the tax treatment of the wage subsidy.
Tax treatment of the wage subsidy (the technical stuff):
  • It is not subject to GST. An order in Council is currently being drafted to treat it as exempt (Section 5(6E)(B) (iii GST Act)
  • The wage subsidy paid to the employer is not taxable. It is excluded income under Section CX 47 Income Tax Act
  • It is not deductible when paid by the employer as part of wages to employees.
  • It is taxable for the employee. It is included as part of their normal wages and subject to PAYE, Student Loan, Kiwisaver deductions
Accounting Treatment:
We are finding that most employers are aware that the Wage Subsidy received from WINZ is tax free. However a lot aren’t aware that they can’t claim the amount paid to staff as an expense (ie wages).
The real tax treatment is putting you into a neutral position. The income isn’t taxable however you can’t claim the wages (wage subsidy portion) as an expense.
Our next issue relates to the fact that we are at the end of the 2020 financial year and you have received a lump sum payment from WINZ which covers a 12 week period. This means you don’t have the expense to offset against the revenue.
At this stage there hasn’t been any direction from IRD as to how to account for this mismatch, legislation is forever evolving so the position may change.
We are recommending the following approach:
You will need to create several new codes in your accounting software:

  • Wage Subsidy Received In Advance (current liability in balance sheet)
  • Wage Subsidy Received (Other income in P&L)
  • Wage Subsidy Paid (Expense in P&L)
Code the lump sum payment to Wage Subsidy Received (the balance sheet code). If you don’t undertake monthly reporting then this is all you need to do. When we prepare your annual accounts we will prepare the necessary journals to account for the wage subsidy.
Monthly Reporting:
If you are undertaking monthly reporting you will need to journal the used portion of the wage subsidy from the balance sheet onto the P&L.
PLEASE NOTE: If you have already followed advice and coded this transaction as ‘Other Income’ in your March P&L, that will be fine, but will need to be adjusted by your accountant at year end (which is now). What follows is ‘best practice’ that we would recommend if you haven’t yet entered the subsidy received.
Below is an example of a business with 20 full-time staff who pay wages weekly with a lump sum payment received on 27-3-20 $140,592 (20 x 585.8 x 12)

  • $140,592 coded to Wages Subsidy Received in Advance (Balance Sheet code).
  • First round of wages paid under lockdown rules on 30-3-20
  • Wage expense coded to wages as per normal.
  • Journal entered:
    • Debit Wage Subsidy Received in Advance (BS) $11,716
    • Credit Wage Subsidy Received (P&L) $11,716
    • Debit Wage Subsidy Paid (P&L) $11,716
    • Credit Wages (P&L) $11,716.
The above journal ensures that you are accounting for the wage subsidy in the correct accounting period (and financial year).
Final Note:
We realise these are tough times and complex situations to navigate. We are here to help you.


We have found that there is some confusion for business owners around the the tax treatment of the wage subsidy.
Tax treatment of the wage subsidy (the technical stuff):

  • It is not subject to GST. An order in Council is currently being drafted to treat it as exempt (Section 5(6E)(B) (iii GST Act)
  • The wage subsidy paid to the employer is not taxable. It is excluded income under Section CX 47 Income Tax Act
  • It is not deductible when paid by the employer as part of wages to employees.
  • It is taxable for the employee. It is included as part of their normal wages and subject to PAYE, Student Loan, Kiwisaver deductions
Accounting Treatment:
We are finding that most employers are aware that the Wage Subsidy received from WINZ is tax free. However a lot aren’t aware that they can’t claim the amount paid to staff as an expense (ie wages).
The real tax treatment is putting you into a neutral position. The income isn’t taxable however you can’t claim the wages (wage subsidy portion) as an expense.
Our next issue relates to the fact that we are at the end of the 2020 financial year and you have received a lump sum payment from WINZ which covers a 12 week period. This means you don’t have the expense to offset against the revenue.
At this stage there hasn’t been any direction from IRD as to how to account for this mismatch, legislation is forever evolving so the position may change.
We are recommending the following approach:
You will need to create several new codes in your accounting software:

  • Wage Subsidy Received In Advance (current liability in balance sheet)
  • Wage Subsidy Received (Other income in P&L)
  • Wage Subsidy Paid (Expense in P&L)
Code the lump sum payment to Wage Subsidy Received (the balance sheet code). If you don’t undertake monthly reporting then this is all you need to do. When we prepare your annual accounts we will prepare the necessary journals to account for the wage subsidy.
Monthly Reporting:
If you are undertaking monthly reporting you will need to journal the used portion of the wage subsidy from the balance sheet onto the P&L.
PLEASE NOTE: If you have already followed advice and coded this transaction as ‘Other Income’ in your March P&L, that will be fine, but will need to be adjusted by your accountant at year end (which is now). What follows is ‘best practice’ that we would recommend if you haven’t yet entered the subsidy received.
Below is an example of a business with 20 full-time staff who pay wages weekly with a lump sum payment received on 27-3-20 $140,592 (20 x 585.8 x 12)

  • $140,592 coded to Wages Subsidy Received in Advance (Balance Sheet code).
  • First round of wages paid under lockdown rules on 30-3-20
  • Wage expense coded to wages as per normal.
  • Journal entered:
    • Debit Wage Subsidy Received in Advance (BS) $11,716
    • Credit Wage Subsidy Received (P&L) $11,716
    • Debit Wage Subsidy Paid (P&L) $11,716
    • Credit Wages (P&L) $11,716.
The above journal ensures that you are accounting for the wage subsidy in the correct accounting period (and financial year).
Final Note:
We realise these are tough times and complex situations to navigate. We are here to help you.


Level 2 and your business going forwards
It has been quite a journey over the past few weeks with a number of businesses able to open and some not.
Going forwards it has been a time to rethink how one can change ones focus on improvements to:
* Customer Relationships
* Marketing of your services
* Quote / Job / Invoicing integration with your accounting process
* Budgeting for Cash Flow / Credit Control
* Providing for Taxes
"Our attention to detail and willingness to listen to your needs is extremely important to our company".   
UPDATES from NZ GOVERNMENT - May 2020
COVID-19 Small Business Cash Flow Scheme (SBCS)
The Government has introduced:
The Small Business Cashflow (loan) Scheme (SBCS) to support businesses and organisations struggling because of loss of revenue as a result of COVID-19.
• To be eligible for the SCBS loan a business or organisation must have 50 or fewer full-time-equivalent employees and be eligible for the Wage Subsidy Scheme. They must also have a sound plan to be viable and ongoing and hold information on file to verify this.
• To be eligible for the SCBS loan a business or organisation must have 50 or fewer full-time-equivalent employees and be eligible for the Wage Subsidy Scheme. They must also have a sound plan to be viable and ongoing and hold information on file to verify this.
• Applications will be open from 12 May 2020 up to and including 12 June 2020. Most will receive funds within five working days.
• IRD will administer the payments and repayments of this scheme. Businesses should speak with their financial advisors before taking this loan.
• The loan has a five-year term and must be repaid by 31 July 2025.
• The annual interest rate will be 3% beginning from the date of the loan being provided. Interest will not be charged if the loan is fully paid back within one year. Repayments are not compulsory in the first 24 months.
• In most cases, businesses will be entitled to a loan amount of $10,000 plus$1,800 per full-time-equivalent employee, to a maximum of $100,000.
Details about eligibility criteria and applying for the loan can be found at:
For further assistance and advice with Subsidy etc - please contact us:


We can be reached by:
Email: aps.accounts@xtra.co.nz
Ph: 07 863 4438
Mob: 0274 392737

Mailing Address:
Accounting Payroll Solutions
P O Box 25
WAIHI BEACH 3642
© Copyright 2006 Petemarg Enterprises Ltd., All rights reserved
PO Box 25, Waihi Beach 3642, Western Bay of Plenty, New Zealand.
AccountingPayrollSolutions.co.nz
E-Mail:  aps.accounts@xtra.co.nz