Potential stand-off between employers and IRD

Potential stand-off between employers and Inland Revenue averted

A potential stand-off between employers and Inland Revenue appears to have been averted by proposed wording changes to New Zealand’s tax rules on accommodation for employees.

It is common place for employers to provide housing accommodation to staff working on projects away from their family home. It has been a long established practice to treat accommodation provided to the employee, either directly or through an allowance, as only subject to PAYE when the employee received a benefit from that accommodation.

This was at odds with the wording in the legislation, and the Rewrite Advisory Panel confirmed that the removal of the ‘benefit’ concept was an unintended legislative change, and recommended that the legislation be amended to reinstate it. This amendment was included in the Taxation (GST and Remedial Matters) Bill introduced in early August.

Questions on the correct tax treatment of accommodation for employees arose when the Income Tax Act was rewritten. Before the re-write, a PAYE liability arose on the market value of the benefit of the accommodation or accommodation allowance. If there was no benefit to the employee, then the accommodation or allowance could be provided or paid tax free.

For example, if an employee was seconded from Auckland to Wellington for a period of six months and was provided with a fully furnished apartment in Wellington during that time, and they were also maintaining a home in Auckland, no benefit would arise to the employee in relation to the Wellington apartment.

The legislation as currently written imposes a PAYE liability regardless of whether or not a benefit arises to the employee. In some circumstances, Inland Revenue has interpreted the current legislation without having regard to the prior wording and the possibility of an unintended legislative change.

Using such a narrow interpretation, Inland Revenue has sought to impose PAYE in situations where it is clear no benefit arises to the employee. The Rewrite Advisory Panel decision to reinstate the ‘benefit’ requirement will address this.

ENDS

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