Johnston Associates Chartered Accountants

Masterminding Brighter Tomorrows

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The Impacts of COVID-19


The impact of COVID-19 on the way of life of Kiwis and the ability to conduct business across many of our industries could not have been predicted even just a few weeks ago and our main concern is the health and safety of our people, clients and communities, and we are following all guidelines recommended by the Ministry of Health.

Second to this is ensuring we’re flexing with the situation and minimising any disruption to our clients and our ‘business as usual’ operation. Our priority is to work with you as you navigate the scenarios that may be affecting business, and respecting policies you may be putting in place.

We have robust IT remote access infrastructure in place, enabling all of our people to work remotely at a moment’s notice, should that be required.

If you are implementing your own COVID-19 protocols, we will work with you to ensure the safety and wellbeing of both your people and our own, including that when requested, your protocols are followed by any of our staff you’re interacting with.

Below is some key information from important stakeholders in your business:-

BANKS

We are in daily contact with all major banks, and most now have a formal COVID-19 packages in place.  Those that don’t yet, will be supportive with temporary overdrafts and in some cases a reduction in interest rates.  We are happy to facilitate and assist you in your request for any short-term assistance you may require from your banking partner utilising the strong banking relationship we hold as a firm.

As you may also be aware, the Reserve Bank earlier this week made an emergency Official Cash Rate (OCR) cut to 0.25%, from 1%, saying the economic outlook has “deteriorated significantly”. The OCR cut took effect from March 17. It will remain at 0.25% for at least 12 months.  In addition the Reserve Bank have further confirmed that they have deferred the start date of the increased capital requirements which is anticipated to have freed up an additional $47 billion of capital funds.  It is our expectation that the majority of these rate cuts will be made available to all customers – however, we don’t believe that fixed rates will drop as significantly.

GOVERNMENT

 The government on 17 March released its $12.1billion package for business support to help assist “cashflow and confidence”, including wage subsidies, tax relief and sick leave support.  This equates to 4% of GDP and is the largest COVID-19 package provided by any government to date. Important points to note:

  • Nearly half the cash ($5.1b) will fund a wage subsidy package for all COVID-19 impacted businesses.  It includes sole traders and the self-employed:

o   Subsidies are available from today (all sectors, all regions).  Employers are encouraged to apply ASAP.

o   Employers are eligible for subsidies if they have suffered (or are projected to suffer) a 30% fall in revenues for any month between January and June 2020 compared to the same month the year before.

o   Employers must also show they tried to mitigate the impact of Covid-19 and declare they will continue to employ affected employees at a minimum of 80% of their income over the 12-month period.

o   Eligible fulltime workers (those who work 20 hours a week or more) will be funded at $585 per week – paid in a lump sum package of $7,020 (covering a 12-week period).

o   Other workers will be funded at $350 per week, again paid in a lump sum up to $4,200 (for 12 weeks).

o   The maximum amount any single employer can receive is capped at $150,000.

https://www.workandincome.govt.nz/products/a-z-benefits/covid-19-support.html

  • A special sick leave scheme has been created – it will be available for 8 weeks at a cost of $126m.  It will assist employees, sole traders and the self-employed who have run out of sick leave and who are not able to work from home whether they are in self-isolation, are sick or are caring for dependents.  Ministry of Social Development will act as gatekeepers for this type of support.
  • There is a further $2.8b in tax support in the form of:

o   Building depreciation reinstated (commercial and industrial only, both new and existing).

o   Low asset deduction threshold increased to $5,000 for the 2021 tax year (reducing to $1,000 for 2022 onwards).

o   Provisional tax threshold uplift – raised from $2,500 to $5,000 effective 1 April.

o   Interest write-offs on late tax payments where ability to pay significantly reduced by effects of COVID-19.

o   Relaxation of FAM rules – parents who work and who do not receive a benefit will receive the In Work Tax Credit so long as they receive some level of employment income (ie they no longer have to satisfy the minimum hours test).

  • Benefits will raise by $25 a week starting 1 April.
  • Winter Energy Payments will double.

IRD

The IRD are offering help in a number of ways, by providing early refunds if tax has been overpaid.  They are being more pragmatic with the implementation of instalment arrangements, and in some case are willing to write off if a serious hardship can be evidenced for those affected by any downturn caused by COVID-19.   Further, extensions to filing dates for some returns may be available, but note these cannot be granted for GST or PAYE.

 INSURANCE

Business interruption insurance is likely to not cover any claim in relation to COVID-19.  Business interruption insurance is designed to pay out when there has been Material Damage, and policy wordings generally require a physical loss to the premises of the insured business.  Furthermore, following the SARs outbreak of the early 2000’s, the global insurance market introduced pandemic or infectious disease type exclusions.  Even some of the contingent extensions, such as denial of access or loss of transport routes, still need an insured peril as a prerequisite for coverage.

Some insurance examples that you may come across:

  • “ The COVID-19 emergency has resulted in supply/manufacturing disruptions, restrictions on travel, import/export hold-ups and financial market jitters. So where does insurance come into the equation? Regrettably, there are very few insurance products that provide cover for such losses.
  • Travel Insurance has the most direct impact with most insurers having now removed cover for travel to China. Cancellation cover to other regions may apply although it is important to remember there is no cover for ‘disinclination to travel’ e.g. a person postpones their travel due to concerns they may come into contact with other potentially infected travellers.
  • Cargo Insurance for shipments to or from New Zealand, is also unlikely to provide cover as losses simply due to delay are generally excluded.
  • Finally, most insurance policies will exclude losses from failure to meet contractual obligations for example, a business’ inability to fulfil a supply order.

In summary therefore, as COVID-19 does not cause physical loss or damage to property and infectious diseases are generally expressly excluded, there are very few insurance policies that will provide cover.

JOHNSTON ASSOCIATES

 We are on hand and over all the new rules and regulations, and are able to help you on all the points above.  Further, we have some very strong market connections and are able to ensure you are talking with the right people in the right organisation.

We can continue to work with you by phone, email and other technology platforms such as Skype, Zoom, Microsoft Teams as required.  Also we can work remotely and we are well placed to meet your continuing needs and support you.

All of our teams’ contact details during this time remain the same, and you can reach us any time as needed.

We are prepared for a number of scenarios and have plans in place if we, as a team or individuals, have to self-isolate to ensure the smooth continuation of business.

Moreover, and most importantly, we can help you budget to ensure you are able to safely navigate your business through this ever changing environment.

A few useful links that you may not be aware of:-

As always, should you have any questions or concerns, please don’t hesitate to contact us

Yours sincerely,

Johnston Associates