A Week in Review

Richard AshbyPartner, Gilligan Sheppard

Small business cash flow loan eligibility in China

The eligibility criteria for the new Covid-19 related small business cash flow loan facility has now been clarified, with the application process going live on 12th May 2020 and with a number of our clients already having had their request for financial assistance approved.

We were already aware that the quantum of loan available to each applicant was to be $10,000 plus $1,800 for each fulltime employee (for businesses with no more than 50 employees), that the loan was to be interest free if fully repaid within the first 12 months, or alternatively that it could be repaid over a five year period, with no mandatory payments in the first two years.

Last week, full details of the eligibility criteria was confirmed, which on top of what we already knew, clarified that:

  • If the loan was not fully repaid within the first 12 months, interest of 3% p.a. would be charged on the loan, accruing from the date the loan was provided;
     
  • The maximum loan amount was $100,000;
     
  • Sole traders/self-employed with no employees could still be eligible for a loan of $11,800;
     
  • An eligible business was one that presently qualified for the Covid-19 wage subsidy, i.e. amongst other things, had already experienced (or expected to experience before June 2020) a greater than 30% reduction in revenue (month on month 2020 to 2019);
     
  • Commonly owned groups of businesses and organisations treated as a single firm when assessing eligibility criteria;
     
  • All applications are to be made via MyIR, required the input of a NZBN (New Zealand Business Number), and required the applicant to make various declarations including confirming business in existence pre 1st April 2020, confirming loan proceeds will only be used to fund core operating costs, confirm the business is viable and ongoing (evidential requirements which could include a statement from their accountant), and confirm that the loan would not be passed through to shareholders/owners;
     
  • That loan applications could be made up to 12th June 2020; and,
     

That interest paid on the loan is not subject to RWT and that loan amounts are not income for Working for Families purposes.

UOMI rates change

With the present climate, it is not surprising to see IR adjust both its paying and charging use of money interest rates (UOMI), applied to both over payments and under payments of tax.

The new rates are already in practice now (application with effect from 8th May), and see a reduction in the Commissioner’s paying rate from 0.81% to 0%, and a reduction in the taxpayer’s paying rate from 8.35% to 7%.

Budget 2020… hmm

Termed ‘The Rebuilding Together’ Budget, it was fairly predictable in these ‘unprecedented times’, that the Government would be throwing everything, including the kitchen sink, at a Covid-19 response package.

And throw they certainly did, a massive $50 billion towards a Response and Recovery Fund, one consequence of which will be to see net core Crown debt levels increase to 53.6% of GDP by 2023.

However there was no mention of any looming tax increases to fund the spending pot (it is an election year after all), but some of the main take outs (was going to say highlights, but probably not the right term) were:

  • An eight-week extension of the wage subsidy scheme, although now with a 50% revenue decline criteria;
     
  • A $150m temporary loan scheme to incentivise businesses to continue Research & Development programmes that would otherwise be at risk because of Covid-19;
     
  • $216m to New Zealand Trade & Enterprise to support exporters;
     
  • A $1b jobs-oriented environmental package;
     
  • A $5b housing package – designed to create 8,000 new jobs over the next four to five years;
     
  • $400m to develop and launch a Tourism Sector Recovery Plan; and,

A $20b kitty fund, just in case.