Meal allowances
Issue: Definition of “overtime”
Clauses 35, 548 and 619
Submission
(46 – Employers and Manufacturers Association (Northern), 54 – Business New Zealand)
The words “when the employee has worked more than two hours beyond their ordinary hours on the day” should be omitted from the meaning of “overtime” in clause 35 of the bill.
Comment
The submission seems to be concerned that the current wording of the “overtime” definition implies that two hours overtime must be worked before an employee is eligible to be paid for overtime. Officials are not convinced that this is the implication and it certainly was not the intention of the current wording in the bill. However, to remove any doubt we agree that the two-hour reference can be removed from the definition of “overtime”. Given that this time limit is important, we recommend that it be included instead in section CW 17C(2) as one of the eligibility requirements for the meal to be exempt. We have discussed this change with Business New Zealand, and they are comfortable with it.
Recommendation
That the submission be accepted.
Issue: Requirement to do at least two hours overtime
Clauses 35, 548 and 619
Submission
(68 – Corporate Taxpayers Group)
The requirement that at least two hours of overtime has to be worked is too strict, particularly for certain types of workers. Consequently, there should be no time limit and instead meal allowances should not be taxable as long as the payment of the allowance is not a substitute for the employee’s ordinary remuneration. Or the definition of “overtime” could be buttressed by excluding any arrangements which have been entered into for the purpose of defeating the intention of the exemption.
Comment
A time limit is important to avoid an employee working only a few minutes of overtime to get a non-taxable overtime meal allowance. Officials understand that two hours is the standard time that employers require before they pay an overtime meal allowance so this limit should fit with current practice. Having instead a specific rule in relation to overtime that either excluded salary substitutes or any arrangements which have been entered into for the purpose of defeating the intention of the exemption would likely create uncertainty about what it meant in practice.
Recommendation
That the submission be declined.
Issue: Overtime meal allowances determined by industrial awards
Clauses 35, 548 and 619
Submission
(68 – Corporate Taxpayers Group)
The rules on the documentary evidence required to support the quantum of allowance paid should be relaxed to specifically state that an amount determined with reference to an industrial award satisfies the evidential requirements.
Comment
Officials consider it is important that the amounts paid for overtime meals should either represent actual costs incurred or a reasonable estimate of those costs rather than having particular amounts automatically sanctioned. If amounts are paid out with no intention of expenditure actually being incurred, the amount paid equates to a salary substitute and should be taxed.
We consider that the draft legislation is already sufficiently wide to accommodate the situation raised in the submission and, consequently, we would generally expect there to be no issue in terms of amounts specified in industrial awards qualifying in practice. As the submission acknowledges, this would arguably already be covered by the legislation on the assumption that the award amounts are based on a reasonable estimate of the costs to be incurred. Furthermore, verification is not required if the actual amount spent is under $20.
We do, however, agree with the alternative suggestion that any concerns in this regard could be addressed through the commentary in the Tax Information Bulletin to be published by Inland Revenue after the bill’s enactment.
Recommendation
That the submission be declined.
Issue: Meals provided to postal delivery workers
Clauses 35, 548 and 619
Submission
(74 & 74A – Deloitte)
The exemption for overtime meals should extend to cover meal allowances paid to postal delivery workers actively involved in the delivery of mail.
Comment
Deloitte is raising this matter on behalf of NZ Post Limited which has several thousand postal workers that carry out their employment duties outside. These employees do not have access to the usual employer-provided drink facilities that employees working in offices would normally have access to. NZ Post indicates that this liquid refreshment (which includes energy drinks) is particularly needed given the physical activity being undertaken by the postal workers actively involved in delivering mail. Moreover, because these workers are required to carry bags of mail, either on foot or by bicycle, they do not have the capacity to carry the energy drinks with them.
NZ Post consequently provides a daily “meal” allowance of around $14, so employees can purchase the required refreshments along the work route if the employee completes 7.5 hours of work on the day. This is consistent with ensuring the health and safety of these employees. NZ Post has been treating this allowance as non-taxable for decades. On average, a postal worker would receive around $300 from these allowances, with their wages being $30,000 to $40,000 a year.
Officials agree that this meal allowance should be non-taxable and recommend that the legislative changes be widened to encompass it. It recognises the additional costs associated with the particular situation and even though it covers a “meal” which would be of private benefit, it also covers refreshments (adjusted for the relevant circumstances) that are normally provided by employers at no cost to their employees.
We do not, however, consider that the draft legislative changes suggested in the submission are the best way to achieve this (for example, there is no need for a cut-off date and to refer to health and safety).
Instead we envisage exempting sustenance payments using generic wording that picks up a number of the key attributes of a postal delivery worker’s job, which in combination are seemingly unique, as follows:
- the employees employment agreement requires them mainly to work outdoors; and
- to undertake a long period of physical activity that does not take place in a single location; and
- the employee works a minimum of seven hours on the day the allowance relates to, without recourse to the employer’s premises; and
- because of the nature of the employee’s work, it is not practicable on the day for the employer to provide refreshments as an employer would in the normal course of their business.
We will continue to discuss the exemption wording with the submitter.
As a consequential change, the sustenance payment should also be exempted from entertainment tax.
Recommendation
That the submission, as modified, be accepted.
Issue: Defining “meals”
Clauses 35, 548 and 619
Submission
(74 – Deloitte)
A definition of “meals” should be included in the legislation to ensure that it covers drinks as well as food.
Comment
This submission was made with reference to the previous submission on postal delivery workers. The submission’s concern is that “meal” could be interpreted to be restricted to “food” and, therefore, would not include a situation such as that of the postal delivery workers, when drinks or energy drinks are purchased and consumed.
“Food” according to the Oxford dictionary means any substance taken in to maintain life and growth. This would seem to be wide enough to cover drink. Moreover, tax case law has indicated that drink can form part of a meal. In these circumstances it seems unnecessary to define “meals”.
Recommendation
That the submission be declined.