Self-employed persons and other individuals upon application, may be eligible for a wage subsidy (including extension, resurgence and March 21) paid by the Ministry of Social Development (MSD) if they have been affected by COVID-19. Leave support payments for self-isolation as a result of COVID-19 (novel coronavirus) are also available to self-employed persons/other individuals who satisfy the eligibility criteria and are prevented from working.
"Other individuals" are people who received a subsidy payment without tax deducted at source, for example: partners, trustees, non-PAYE shareholder-employees, Look-through company owners, students, and home-based childcare providers.
There are specific tax issues for the self-employed and other individuals to consider.
Tax issues for self-employed customers and other individuals
Accounting for tax on the wage subsidy payments
The COVID-19 wage subsidy and leave payments from MSD received by self-employed persons/other individuals are considered a compensation payment under section CG 5B and must be included as income in your IR3/IR3NR return:
- in the 2020 year in the "Other income" box
- In the 2021 year onwards in the “Government Subsidies” box.
You can find examples of various scenarios applying to self-employed persons and other individuals in Accounting for the wage subsidy - IR1251.
Spreading of the subsidy payments
Where customers received the initial wage or leave subsidy payment which was for 12 weeks before 31 March 2020, as only 1 or 2 weeks would have related to the 2020 tax year it can be spread over the 2020 and 2021 income tax returns.
Similarly, if customers received the March 2021 (two weeks) wage subsidy payment prior to 31 March 2021, depending on the date received it may be able to be spread over the 2021 and 2022 income tax returns.
Example: Spreading the subsidy
Jenny applied for the initial wage subsidy and received payment ($7,029.60) on 24 March 2020. Of the 12-week payment received, only one week relates to the 31 March 2020 tax year. Jenny is required to return 1/12th of the payment ($585.80) in the 31 March 2020 income tax return. The remaining 11 weeks ($6,443.80) is required to be returned in the 31 March 2021 income tax return.
Example: Subsidy received in single tax year
Adrian applied for the March 2021 wage subsidy. He received payment ($1,171.60) on 13 March. As the payment was for two weeks and this all falls into the 2021 tax year, he is required to include this full payment in his 31 March 2021 tax return. Nothing can be allocated to the 2022 tax year.
Example: Subsidy repaid in same tax year
John received a full-time wage subsidy payment of $7,029 on 3 April 2020. After review by MSD, it was determined he was only entitled to the part-time subsidy ($4,200). John was required to repay MSD $2,829. John repaid this amount on 1 February 2021. John will declare $4,200 ($7,029 - $2,829) in the Government Subsidies key point in his IR3.