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Reply To: As a sole trader, my lump sum wage subsidy is treated as “other income” in a tax return rather than as wages/PAYE. I have just been advised by IRD in writing that because I received it in March it must be declared as income in the 2019/20 tax year. As background I applied for this based on a projected significant downturn in business from April onwards. I applied on 24 March and it was paid to me on 27 March. This treatment seems very onerous on sole traders. If I had known I would have waited until April to apply as this extra tax would have been far easier to deal with if it was apportioned over the 12 weeks it represents or from 1 April 2020. I wonder whether this income tax timing issue which seems to be an ‘unintended consequence’ for sole traders in particular can be challenged or whether anyone has advice on this?

Hi Andy and Darren,

Thanks for your replies and advice. I am a provisional tax payer – twice yearly. With 100% reduction in business it’s going to be a challenge to meet the next payment combined with the increased and unexpected tax for this recent F/Y. This I will negotiate with the IRD and I do note the willingness to write off interest and payments.

My key point, though, is that sole traders seem to be given no choice. Whereas Employers who received the lump sum before March can choose to pay employees over a number of pay periods to spread the tax burden on those employees. This is from business.govt.nz covid-19 news page: “Employers can pay their employees as per their usual pay cycles, or at other intervals as agreed with the employee. Employers must discuss any likely changes to wage payment intervals with employees, as these may have adverse tax implications for employees.” The same page has no advice for sole traders on tax.

It also seems very arbitrary: another sole trader who applied on the same day as me in March, but for whatever reason had a delayed payment that didn’t arrive until 1 April will be fine.

For me and for other sole traders caught in this, this may tip us into a higher tax bracket – so we will likely pay more tax on this subsidy. Also ACC bills – which this year will be based on actual income will also be higher. So there are broader implications.

As you can imagine – if I’d known any of this I would have waited five days before I applied. However in the stress of that week and with the encouragement to apply for ‘predicted’ loss of earnings, I went ahead.

I’m very grateful for the support from the Government, however this tax timing issue seems to be biased, arbitrary and unfair for sole traders – I really don’t believe the Government would have intended this.

In highlighting it on this forum I’m hoping that somehow this issue comes to the attention of someone who can influence the way this is treated within the IRD. I’m not sure anyone is setting out the issues for Sole Traders in all of this as all the attention seems to be on the larger employers. So thanks again for reading and responding.