30 Mar 2020

Your Covid-19 business questions answered

6:27 pm on 30 March 2020

As Covid-19 spreads around the world, it can be daunting keeping up with the information. For RNZ, our responsibility is to give you verified, up to the minute, trustworthy information to help you make decisions about your lives and your health. We'll also be asking questions of officials and decision makers about how they're responding to the virus. Our aim is to keep you informed.

RNZ Business has received a range of Covid-19 questions from the public over the past week. Here's the answers to questions you've been asking.

Businessman working in modern cretive studio. Using generic design laptop. Architectural project on table.

Photo: 123rf

I am a self-employed piano teacher with my own students and contracting in music schools, which I started last year March. I have lost a lot of income already in the first term as I taught a lot of groups and they had all been cancelled. Now I have had to cancel my private students for the duration as well. I will try and do online lessons with those who can. Who do I turn to for help with my income?

Work and Income, for the wage subsidy payment. You need to prove there has been at least a 30 percent drop in revenue (i.e. show income for this month vs last March) or show April forecast revenue vs April revenue last year. You can apply on the [www.workandincome.govt.nz/covid19support WINZ website.]

Note there is a separate application form for self-employed.

Can I travel in my bubble to my self-contained studio at a second empty home? I'm isolating with my partner but still have my own home 12km away with my own stuff and no one in it where I'd planned to work online from? And maintain my garden... rural journey between the two.

No. Travelling is only supposed to be for essential reasons i.e. going to your essential job, supermarket, pharmacy etc.

Self-employed people not only have absent income ..but there are also Inland Revenue bills due. Mortgage repayments have been awarded a deferment ...which is great! But what about tax payments? It would be helpful for those who now are not receiving the anticipated income to have a delay/ deferment on their income tax payment especially as this is generally a forecast on the previous year income.

IRD has said if your business is unable to to pay its taxes on time, due to the impact of Covid-19, it can wait.

"Get in touch with us when you can, and we'll write-off any penalties and interest.

"It would help if you continue to file however, as the information issued to make correct payments to people, and to help the government continue respond to what is happening in the economy."

  • If you have symptoms of the coronavirus, call the NZ Covid-19 Healthline on 0800 358 5453 (+64 9 358 5453 for international SIMs) or call your GP - don't show up at a medical centre

As owners of commercial property, we have had tenants contact us re: suspension or deferment of rental payments due to their businesses having to be closed due to the Covid-19 lockdown. Is there any financial assistance from the government either as the property owner or rental assistance for the property renter and if so can you point us in the right direction?

This answer comes from Buddle Findlay commercial property and tax experts Charlotte von Dadelszen and Amy Ryburn.

Financial Assistance:

The government packages announced can potentially provide relief for tenants who are unable to pay their rent or landlords who do not receive rental payments (including wage subsidies and the leave payment schemes). These may assist tenants financially to help them ensure that they can both make rental payments and support their employees.

For businesses, the government has also put in place a range of business cash flow and tax measures including:

  • Increasing the provisional tax threshold from $2,500 to $5,000 from 2020/2021
  • Increasing the small asset depreciation threshold from $500 to $1,000 - and to $5,000 for the 2020/21 tax year
  • Allowing depreciation on commercial and industrial buildings from 2020/2021
  • Removing the hours test from the In-Work Tax Credit (IWTC) from 1 July 2020

From a landlord's perspective, it can obviously be stressful to have tenants who cannot pay rent - especially if the landlord has mortgage payments to make. On this, the banks will be giving mortgage holders whose incomes have been affected by Covid-19 a six-month payment holiday on both the interest and principal of their mortgages, and the Reserve Bank will be helping banks put this in place with appropriate capital rules. Banks will be getting into contact with their customers regarding eligibility criteria in the coming days (the details are not available yet). While the focus seems to be on keeping people in homes there is no indication yet that this will not also apply to commercial landlords who have mortgages. We understand that specific details of these initiatives are still being finalised and will be made public in the next few days.

We also understand that small and medium sized businesses (which includes landlords and tenants) may be able to take advantage of the six-month principal and interest payment holiday being offered by banks and backed by the government for business loans. We understand that specific details of these initiatives are still being finalised and again, will be made public in the next few days.

Rental Payments:

Commercial tenants should carefully review their lease agreement for any sources of rental relief as a result of Covid-19. The most widely used form of commercial lease includes a "no access in emergency clause" (e.g. clause 27 of the Auckland District Law Society Deed of Lease), which is likely to be triggered in these circumstances. This clause typically provides for a fair proportion of rent and outgoings to abate or cease for the period where a tenant cannot access the premises as a result of an emergency. If the restriction on access continues for a specified time period (usually 9 months), both the tenant and landlord have a right to terminate the lease. In our view Covid-19 fits within the definition of "emergency" in the standard ADLS lease, given it is an epidemic which "may cause loss of life, illness… or seriously endangers the public". We also note that the government has issued an Epidemic Preparedness (Covid-19) Notice 2020, which gives further weight to this view.

Whether rent abatement is available to a tenant will depend on the specific terms of each lease. The "no access in an emergency" provision was introduced to the standard ADLS form of lease in 2012 following the Canterbury earthquakes so a similar provision may not be included in leases entered into before this date. Parties should seek legal advice in relation to their specific lease agreement, as they are all different. If a tenant defaults on its rent payments without any right to do so, this could amount to a repudiation of the lease which gives the landlord an ability to terminate the lease and/or recover damages from the tenant. Tenants should be careful when making any decision to stop paying their rent.

Given the unprecedented nature of these circumstances, the best practical step, if a tenant cannot pay their rent (or is concerned that they may not be able to), is to have an early discussion with their landlord. The landlord and tenant may be able to reach agreement on a rental holiday or reduced rental payments. Similar to mortgage payment holidays that have been announced by the government, a payment holiday may be more attractive to a landlord than a tenant defaulting on its obligations resulting in the landlord facing expensive enforcement proceedings and vacant premises at a time of reduced market demand. Both landlords and tenants should also review their business interruption insurance.

I'm in a good spot during lockdown to watch the comings and goings at Centreport in Wellington. At this stage there is a lot of activity. Will this continue during lockdown?

If you enjoying watching the docks you're in luck - ports are considered essential and will keep operating, as will all businesses involved in shipping and supporting cargo operations. Workers will need to abide by strict health and safety rules like distancing etc. Office operations where possible will be done remotely. Centreport's also reduced some of its charges, like import demurrage and extended its export storage charge to 14 days instead of 7.

I wondered if the supply chain will be interrupted because India is locked down? I believe it's one of the major manufacturers of pharmaceutical products.

The impact of Covid-19 is likely to have global implications for medicine manufacture and supply chains for the remainder of 2020 and potentially beyond. Pharmac will continue to monitor the situation carefully to ensure that its healthcare providers - both in the community and in hospitals - have the medicines and medical devices they need.

Pharmac has made changes to the Pharmaceutical Schedule, restricting the dispensing of funded medicines to just one month's supply at a time.

I took a year-long multi-trip travel insurance cover in Feb, effective from 21 March. It has never been used but AA/Allianz are saying I'm not entitled to a refund. That seems to me to be wrong on every level?

Allianz says: Generally, travel insurance policies have a cooling-off period during which policies can be cancelled free of charge, after which point premiums are non-refundable.

AA Travel Insurance says the cooling-off period is 14 days. However, we understand Covid-19 calls for a different approach than our standard procedures. We are offering customers the ability to change their policy dates for future travel within 12 months of the original policy's commencement date. We are also considering requests for refunds on a case-by-case basis. We encourage AA Travel customers directly impacted by Covid-19 to email help@allianz-assistance.co.nz for further assistance.

Consumer NZ says: Insurers' practices differ - Southern Cross, for example, says in its policy that you'll get a refund provided you haven't claimed. Our view is that insurers should be doing the right thing and refunding customers who need to cancel their cover because they can no longer travel.

The Insurance Council says: "We are aware of at least one of our members who is offering refunds of unused travel insurance premiums and that others are considering it. If travellers are unsure they should contact their insurer and ask them.

"People should also be aware that if their travel insurer is offering a refund it may not be for the full premium paid - this is likely because travel insurance offers cover from the date of purchase and not for the travel period alone."

Can an approved essential business operating as normal receive government wage subsidy?

Yes, provided it meets the criteria.

Are banks are lowering their interest rates for commercial/business loans at the moment?

The base rate for business loans is usually adjusted in line with changes to the home loan rate and the Reserve Bank's cash rate but perhaps not so quickly. ANZ's commercial, business and agri floating loans have dropped the full 0.75 percent. Business loans are more expensive, because they are more risky and in the current environment that risk is rising, which is why the government has agreed on the business loan guarantee scheme.

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