12 November 2013
Changes to Tax Treatment of Employee and Accommodation Allowances
The Government is to include changes to the tax treatment of employee allowances, reimbursements and employer-provided accommodation in a tax bill to be introduced to Parliament later this month that will bring clarity for many taxpayers.
Revenue Minister Todd McClay said today that a decision by Cabinet to include changes to the Income Tax Act as part of the Taxation (Annual Rates, Employee Allowances, and Remedial Matters) Bill will also minimise compliance and administration costs for many businesses and organisations.
“The current rules around allowances, other expenditure payments and employer-provided accommodation can leave businesses uncertain about the extent to which these payments and accommodation are taxable under different circumstances.
“Under the current legislation, when an employer makes a payment to meet an employee’s work expense, and there is no private benefit, then generally there will be no tax consequences. However there are occasions when the line between what is a private expense and what is solely a work expense is not straightforward. This has been a concern for employers.
“Our message is that the Government has listened to those concerns. A significant number of people spend time working away from their normal workplace, and are paid work-related allowances or have accommodation provided, especially those who are part of the Canterbury rebuild,” Mr McClay said.
The proposed changes include:
- When an employee is expected to work away from their normal workplace for up to two years, employer-provided accommodation will be tax-exempt. This exemption will extend to up to three years for employees working on capital projects and up to five years for Canterbury earthquake recovery projects.
- Accommodation or accommodation payments for those working at more than one workplace on an on-going basis will be tax exempt without an upper time limit.
- When an accommodation benefit is taxable, it will generally be valued at its market rental value. However, for reasons of fairness, a specific valuation rule is proposed for ministers of religion, to reflect longstanding past practice. In that case the taxable value will be capped at 10% of the minister’s remuneration, subject to the accommodation being commensurate with the minister’s position and ministry location.
- Likewise, a specific valuation rule is proposed for accommodation provided by the New Zealand Defence Forces to a number of its personnel, in recognition of the unique nature of the accommodation arrangement.
- Meal payments linked to work-related travel will be exempt for up to three months. Meal payments and light refreshments outside of work-related travel (such as conferences) will also be tax-exempt.
- A specific exemption for payments for distinctive work clothing (to match the outcome where clothing is provided directly by the employer). Plain clothes allowances will also be exempt if paid to employees who are provided with a uniform but because of the nature of their current duties are required not to wear that uniform.
“The proposed changes will potentially benefit a wide range of employees who are required to work away from their normal place of work for a period of time while providing greater certainty, consistency, and fairness for those businesses and organisations who are their employers.
“By providing legislative clarity around these tax rules, the Government is ensuring that it not only continues to support the Canterbury earthquake recovery, but also reduces the cost of doing business.” Mr McClay said.
Media contact: Rob Eaddy 0274 596 200