Leave payments for self-isolation as a result of COVID-19 (novel coronavirus) are available to businesses, contractors and self-employed workers who satisfy the eligibility criteria and are prevented from working. Further information on these subsidies and applications for a self-isolation leave subsidy on behalf of an affected employee are available on the Work and Income website.
COVID-19 Leave Payment - Work and Income
This subsidy does not affect any leave entitlements that are owed and is not available for those who are able to work from home during their period of self-isolation and be paid normally by their employer.
Self-isolation leave subsidies should be passed onto the employee by the employer and processed as part of the employee's normal wages. All deductions (such as PAYE, KiwiSaver, or child support) should be made as normal. The employer will not be liable to income tax or GST on the subsidy received from the Ministry of Social Development and will not be entitled to an income tax deduction for wages paid out of the wage subsidy.
Example: Self-employed landscaper
Daniel Loh is a landscape who works for himself and is registered for GST. Daniel and his husband have been on holiday in Europe, but have had to cut their trip short due to the COVID-19 outbreak. Daniel arrived home on 22 March and will now go into self-isolation for two weeks, following the Government's requirements.
As he is a sole trader Daniel has no sick leave entitlement, so he applies for and receives the full-time leave subsidy of $1,170.60. Daniel isn't required to account for GST on the subsidy received from MSD. However, the amount will be taxable to Daniel for income tax purposes. Daniel will include the subsidy in his Individual income tax return - IR3 and pay tax, as it is a payment that compensates Daniel for his lost earnings during self-isolation.
Example: Burger & Co Ltd
Burger & Co Ltd operates restaurants and cafes in Wellington. One of its full-time chefs returned from a holiday in Australia on 19 March and was required to self-isolate for the next 2 weeks. As a result, the company applied for and received the COVID-19 leave subsidy from MSD of $1,171.60 on 24 March 202 (before the announcement on 27 March that the leave subsidy would become obsolete).
Burger & Co Ltd will need to pass on the full $1,171.60 to the chef employee ($585.80 per week). This will be treated as ordinary PAYE earnings in the hands of the employee, so Burger & Co Ltd will need to deduct and withhold PAYE, KiwiSaver (and any student loan or child support payments if applicable) on behalf of the employee from the final gross payment of wages (in the usual manner). For the purposes of the employee’s tax liability the self-isolation leave payment is treated the same way as a payment of sick leave or annual leave.
When calculating Burger & Co Ltd's own income tax liability, the subsidy is:
- excluded income and therefore not subject to income tax
- specifically excluded from being subject to GST
- non-deductible for tax purposes, as a result Burger & Co Ltd is not entitled to a deduction for the wages paid with the leave subsidy.
Note: From 3pm 27th March 2020 the Leave Subsidy Scheme has been absorbed into the Wage Subsidy Scheme, preventing applicants from accessing both entitlements at the same time for workers.
Example: Sophie the Plumber
Sophie, a full time plumber working for Easy Flow Pipes, returned from a cruise around the Pacific on March 17. She has subsequently tested positive for COVID-19. Although she's already feeling better, she's required to self-isolate for the full 14 days. Sophie had already used her sick days earlier this year. Her employer has applied for and received a lump sum payment of $1,170.60 for the two-week mandatory isolation period for Sophie. Easy Flow Pipes is not required to include the $1,170.60 in its own income tax return or GST return as the payment is a subsidy, meaning it is excluded income and not subject to GST.
Sophie will have withheld from the self-isolation leave any PAYE, KiwiSaver and child support deductions that are normally withheld from her wages, in the same way as normal salary and wages or sick leave.