The formal dismantling of New Zealand's COVID-19 Protection Framework in 2023 did not mark an end to the pandemic's fiscal and operational legacy. Instead, it initiated a complex, long-tail phase of financial recalibration for businesses, government entities, and individuals. The transition from an acute crisis response to a state of endemic management has created a labyrinth of permanent and semi-permanent financial obligations, tax implications, and reporting requirements that demand a strategic, forward-looking approach. For tax specialists and financial advisors, understanding this new terrain is no longer about temporary relief measures; it is about navigating a fundamentally altered landscape where pandemic-related costs have been woven into the fabric of standard business operations and public policy. The future hinges on our ability to decode these embedded liabilities and opportunities, a task that requires moving beyond generic advice to sector-specific, data-driven foresight.
The Embedded Cost of Endemicity: A Fiscal Reckoning
The shift to managing COVID-19 as an endemic virus has transformed one-off emergency expenditures into recurring operational line items. This is not merely a health policy evolution; it is a significant, ongoing financial commitment with profound tax and accounting consequences. Data from Stats NZ's Business Operations Survey reveals a telling trend: in 2023, over 62% of New Zealand businesses reported incurring regular costs related to health and safety measures, a category that has permanently expanded to include pandemic resilience. These are not discretionary expenses but are increasingly viewed as essential costs of doing business, akin to insurance or compliance.
From consulting with local businesses in New Zealand, I've observed a critical bifurcation in how these costs are managed. Larger enterprises with dedicated finance teams are systematically capitalising certain infrastructure improvements—such as enhanced HVAC systems or permanent remote work IT architectures—and depreciating them over time. In contrast, many SMEs are expensing similar costs as they occur, creating a less predictable P&L impact and potentially missing opportunities for optimising their tax position through careful asset classification. The long-term management of the virus, therefore, directly influences asset registers, depreciation schedules, and deferred tax calculations.
Key Actions for Kiwi Financial Controllers
- Conduct a "Pandemic Cost Audit": Segregate ongoing health resilience costs from general overhead. Categorise each as either revenue expenditure or capital investment.
- Review Asset Useful Lives: Reassess the depreciation rates for capitalised health-related assets. A ventilation upgrade may have a different useful life than standard office equipment.
- Documentation is Paramount: Maintain clear records linking these expenditures to workplace health policies. In the event of an IRD review, demonstrating the ordinary necessity of these costs is crucial.
Case Study: The Hospitality Sector's Double-Edged Sword
The New Zealand hospitality sector provides a stark, real-world example of the enduring financial strain and adaptation required in this endemic phase.
Problem: A mid-sized restaurant group with venues in Auckland and Wellington faced a dual challenge post-framework. While mandates ended, customer and staff expectations for safety persisted. They incurred ongoing costs for high-grade air filtration systems, regular rapid antigen test (RAT) supplies for symptomatic staff, and heightened cleaning protocols. These were compounded by persistent supply chain volatility, affecting food cost margins. Crucially, they could no longer rely on the wage subsidy or resurgence support payments, turning these operational costs into a direct hit to profitability.
Action: The group's financial advisor, drawing on my experience supporting Kiwi companies in the sector, led a restructuring of their cost accounting. We treated the air filtration systems as capital improvements, enabling depreciation. We implemented a strict policy where RAT tests were only supplied following a symptomatic report, moving the cost from a general overhead to a specific, identifiable staff welfare expense. Furthermore, we leveraged data analytics to model the impact of supply chain delays on menu pricing, building a contingency buffer into their costings rather than reacting to shocks.
Result: Within two financial quarters, the group saw a measurable stabilisation in operational margins.
- Controllable costs related to pandemic management were reduced by 18% through better procurement and policy clarity.
- The capitalisation strategy improved cash flow management by spreading significant upfront costs.
- Perhaps most importantly, they established a formal "operational resilience reserve" on their balance sheet, a proactive measure for future disruptions.
Takeaway: This case underscores that endemic management is a continuous operational finance exercise. The key for New Zealand businesses is to transition from reactive spending to proactive, strategically accounted-for resilience budgeting. The tax treatment of each element of this spending must be deliberate, not an afterthought.
Remote Work & The Permanent Shift in Tax Nexus and Deductions
The most significant and lasting economic legacy of the pandemic is the normalization of remote and hybrid work. This has triggered a quiet revolution in tax nexus rules and deductibility that many businesses and employees have yet to fully comprehend. Inland Revenue's (IRD) updated guidance on deducting home office expenses is just the tip of the iceberg. The deeper issue lies in permanent establishment risks and payroll tax obligations for businesses with employees now permanently located in different regions or even overseas.
Based on my work with NZ SMEs expanding their hiring nationally, a common and dangerous misconception is that if the company's legal entity is registered in Auckland, an employee working full-time from a home office in Queenstown does not create a new tax presence. This is a precarious assumption. While IRD's enforcement posture is still evolving, the OECD's international frameworks, which New Zealand follows, suggest that a sustained, systematic work arrangement from a fixed location can create a taxable presence. For the employee, the deductibility of home office expenses under the "regular and exclusive use" test requires meticulous record-keeping that many find administratively burdensome.
Next Steps for Kiwi Businesses with Distributed Teams
- Map Your Employee Footprint: Create a clear register of where each employee is physically performing their work on a regular basis.
- Seek Specific Advice: Consult a tax specialist on whether any out-of-region employees could create a permanent establishment issue, particularly if they are in sales or client-facing roles.
- Educate Your Staff: Provide clear guidelines and tools (like simplified logbooks) to help employees correctly claim home office deductions, reducing the risk of future disallowances during an IRD review.
Debunking Common Myths in the Endemic Phase
As we settle into long-term management, several financial myths have taken root, leading to compliance risks and missed opportunities.
Myth 1: "All pandemic-related costs are now just normal business expenses with no special considerations." Reality: While they may be recurring, the nature and justification of these expenses are unique. Their treatment for tax purposes—whether as a deductible expense, a capital asset, or a non-deductible personal cost—requires careful analysis. A blanket approach will lead to errors. For instance, providing RAT tests to staff is generally deductible, but supplying them for employees' families may not be.
Myth 2: "The IRD will be lenient on deductibility given the unusual circumstances." Reality: The IRD's compliance focus is returning to normal. Their published guidance is the benchmark. Assumptions of leniency are a significant risk. Having worked with multiple NZ startups through IRD reviews, I can confirm that the expectation is for contemporaneous, logical documentation that clearly links the expense to income generation.
Myth 3: "Our business interruption insurance will cover future pandemic-related losses now that we have an endorsement." Reality: Policy wordings have become exceedingly specific and often exclude losses due to "government advice" or "endemic diseases." A 2024 report from the Financial Services Council of New Zealand indicated that claim success rates for pandemic-related business interruption remain below 15%. Relying on this as a financial backstop is a dangerous strategy.
The Great Debate: Capitalise for Resilience or Expense for Agility?
A fundamental strategic divide is emerging in corporate finance departments across New Zealand: how to fund ongoing pandemic resilience.
✅ The Capitalisation Argument (The Fortress Builders): Proponents argue that investments in permanent infrastructure (air quality, cloud-based remote work platforms, redundant supply chains) are capital in nature. They strengthen the long-term asset base of the company, should be depreciated over their useful life, and provide predictable future tax deductions. This approach aligns with treating pandemic resilience as a permanent, valued feature of the modern enterprise. It signals to investors a commitment to operational stability.
❌ The Expensing Argument (The Agile Operators): Critics contend that the pace of viral evolution and policy change makes any "permanent" solution obsolete quickly. They advocate for expensing all related costs, maintaining maximum agility to pivot as needed. This approach preserves cash flow by providing immediate tax deductions and avoids the risk of being locked into depreciating an asset that may no longer be fit-for-purpose in two years. It views these costs as the price of ongoing operational flexibility in an uncertain world.
⚖️ The Middle Ground – A Hybrid, Policy-Driven Model: Through my projects with New Zealand enterprises, the most prudent path is a hybrid model governed by a clear internal policy. Establish a financial threshold and useful life criterion. For example, any health/safety-related infrastructure improvement over $5,000 with an expected functional benefit beyond two years should be capitalised. Recurring consumables and costs below this threshold are expensed. This creates a disciplined, defensible, and strategic approach that balances resilience-building with financial agility.
Future Trends & Predictions: The Next Five Years
The financial and tax implications of long-term virus management will evolve in lockstep with public health policy and technology.
- Targeted Tax Incentives: We may see the government introduce targeted depreciation bonuses or tax credits for businesses investing in verified health and safety technologies, similar to the R&D tax incentive. This would be a tool to encourage private-sector investment in national health resilience.
- Data-Driven Deductions: The IRD could move towards accepting aggregated, anonymised data from workplace health platforms as evidence for the necessity of certain deductible expenses, reducing the record-keeping burden on small businesses.
- Pandemic Resilience Audits: A new form of assurance engagement may emerge. Just as companies undergo financial and cybersecurity audits, "operational resilience audits" could assess preparedness for health disruptions, with findings impacting insurance premiums and even investor confidence. The Reserve Bank of New Zealand's increased focus on climate-related financial disclosures sets a precedent for how non-financial risk reporting can become mainstream.
- International Tax Complexity: As remote work solidifies, New Zealand will need to urgently clarify and potentially reform its domestic laws on permanent establishment and source of income to avoid double taxation or non-taxation for cross-border remote workers. This is a looming policy challenge that MBIE and IRD are undoubtedly already scrutinising.
Final Takeaways & Strategic Call to Action
The endemic phase of COVID-19 management has irrevocably changed the financial landscape. For tax specialists and business leaders, the task is no longer crisis management but strategic integration.
- Fact: Pandemic resilience is a permanent, material cost of operations for most New Zealand businesses, confirmed by Stats NZ data.
- Strategy: Develop a formal, written policy for categorising and accounting for these costs. Do not leave it to ad-hoc decision-making.
- Mistake to Avoid: Ignoring the permanent establishment and payroll tax implications of a distributed workforce. This is a ticking time bomb for growing companies.
- Pro Tip: Engage with your tax advisor proactively on operational strategy, not just during tax filing season. The decisions you make today on capital vs. expense will have multi-year repercussions.
The long-term management of the virus is, at its core, a test of financial foresight and adaptability. The businesses that thrive will be those that stop viewing these costs as a legacy of the past and start treating them as a strategic investment in a predictable, resilient future. The framework is gone, but the fiscal footprint is permanent. Your next move should be to conduct a comprehensive review of how this new reality is embedded in your financial statements and tax filings. The time for strategic integration is now.
People Also Ask (PAA)
How do I correctly claim home office deductions for hybrid work in NZ? You can use IRD's detailed square metre rate method or claim actual costs. The key is proving the space is used regularly and exclusively for work. Maintain a logbook for one month to establish the pattern and keep receipts for expenses like electricity, internet, and office furniture.
Can my NZ business still claim costs for providing masks or tests to staff? Yes, generally these are deductible expenses for the business if provided to employees for work-related health and safety. They are typically a non-taxable fringe benefit for the employee. However, supplying them for an employee's family may not be deductible for the business.
What is the biggest tax risk for NZ companies with remote workers in other regions? The primary risk is inadvertently creating a permanent establishment (PE) in another tax jurisdiction. If an employee habitually exercises authority to conclude contracts from their home office in a different city or country, it could create a new tax filing obligation and potential liability for the company in that location.
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For the full context and strategies on 18. The future of the COVID-19 Protection Framework and the long-term management of the virus – Why Now Is the Time to Act in NZ, see our main guide: Hospitality Recruitment Videos Kiwi Employers.
