The Ministry of Social Development website states “If you work for the business and you are paid a wage, salary or draw an income for the work you do for the business, you can apply for the wage subsidy”. So, there is a requirement that the shareholder is receiving income from the work that they do for the business.
The underlying intent of the subsidy is that it is passed on, in full, to the person whose income it is intended to replace. It is not intended that the company retain the subsidy amount.
The tax outcome depends on how the company usually pays its shareholder-employees. This could be regular, and subject to the usual PAYE deductions, or it could be at the end of the year via a shareholder’s salary.
- If the company makes regular payments subject to PAYE then it should process the payments as normal. The receipt of the subsidy is exempt income for the company and the payment to the shareholder is not deductible, so a NIL tax outcome for the company. The ‘wages’ paid to the employee are taxable in the usual way.
- If a shareholder’s salary is declared at the end of the year, the shareholder would includes this in their IR3. If part of the salary they receive is funded by the subsidy it is still returned as ‘income’ by the shareholder-employee. The same rules apply for the company – it is exempt income when received and non-deductible when paid out
Although a shareholder’s salary generally doesn't exceed the company's taxable profit, because the subsidy is exempt and non-deductible to the company it doesn’t form part of the taxable profit. Therefore, the subsidy must be returned by the shareholder-employee in addition to any profit allocated as a salary.