Hon Peter Dunne
Minister of Revenue
Law change to ensure tax-free relocation payments and overtime meal allowances
The government will introduce legislation to ensure that employer payments for employee relocation expenses and overtime meal allowances are tax-free, Finance Minister Michael Cullen and Revenue Minister Peter Dunne said today.
The government's announcement corresponds with Inland Revenue's release today of a draft guideline to the interpretation of the law that sees payments for relocation expenses and overtime meal allowances as taxable to employees, under the current wording of the legislation.
"Over recent years there has been a great deal of uncertainty over the tax treatment of payments for relocation and overtime meal allowances, and whether or not they constitute income that is taxable to the employees who receive them," Dr Cullen and Mr Dunne said.
"The law relating to these payments needs to be clarified and simplified, so that employers can get on with running their businesses, and not have to devote valuable resources to determining the tax status of these payments.
"Changing the law accordingly will also reduce the likelihood of employers having to dispute the matter with Inland Revenue, and possibly ending up in court, thus saving time and money for everyone.
"We will therefore introduce amendments to the Income Tax Act to make relocation payments and overtime meal allowances clearly exempt from income tax and, where relevant, exempt from fringe benefit tax. The changes will be subject to clear limitations to prevent their use for purposes of salary substitution.
"The government has decided to make these payments and allowances tax-free because they are of small private benefit to the employee concerned, hard to measure and not readily substitutable for salary and wages.
"To further reduce uncertainty, the changes will apply to payments made over the past four years, as well as to future payments.
"We expect the changes to be included in the first taxation bill to be introduced next year. In the meantime, officials will be consulting with interested parties over the details of the proposed policy, such as the definition of "overtime meal allowance" and a list of eligible relocation expenses. An issues paper seeking public feedback on these details is planned for release within a few weeks.
"The proposed legislative changes should be sufficient to deal with uncertainty about the tax treatment of these reimbursements and allowances. However, people who can make a strong case for introducing legislative certainty for similar reimbursements and allowances will be able to do so by sending a submission in response to the issues paper when it is released," the Ministers said.
Bryan McDaniel, press secretary, 04 471 9412 or 021 270 9013
Ted Sheehan, press secretary to Peter Dunne, 04 470 6985 or 021 638 920