Including certain benefits in family scheme income

Issue: Appropriate year for recognising benefits in income

Submission

(New Zealand Institute of Chartered Accountants)

The amount included in “family scheme income” for the income year should be the value of the benefits received in the previous income year.

This will reduce compliance costs and the likelihood of unrecoverable debts arising if the employee is remiss in advising Inland Revenue about the receipt of those benefits. The timing of receipt of benefits may not always coincide with the time when the person must inform Inland Revenue of their family scheme income.

Comment

The bill requires employees to include short-term charge facility benefits (above the cap) and explicit salary trade-offs involving cars in “family scheme income”.

“Family scheme income” is the definition of income used for Working for Families (WFF) tax credits. It is basically taxable income with a range of adjustments, such as the inclusion of trust income and the adding back of rental property losses.

WFF tax credits are calculated at the end of the tax year using the person’s family scheme income for that income year. While claimants who apply for interim instalments of WFF tax credits during the year, based on their estimated income, may have trouble estimating the proposed additional benefits likely to be received during the year, this process is subject to a square-up at the end of the tax year. Furthermore, similar estimation difficulties already exist in respect of other types of family scheme income, such as the fringe benefits for shareholder-employees who control 50 percent or more of a company, and extra pays. Claimants are encouraged to update estimated income amounts when changes occur during the year, to minimise any difference at square-up.

In these circumstances, officials see no reason why using the income year in which the benefit was received would not work when including short-term charge facilities and explicit salary trade-offs involving cars in family scheme income.

Recommendation

That the submission be declined.

Issue: The inclusion of short-term charge facilities in family scheme income should be limited to benefits provided by charitable organisations

Submission

(New Zealand Institute of Chartered Accountants, Wilson Parking)

The proposal will require all employers to keep records of short-term charge facilities provided to employees. This is not currently required of employers who are not charitable organisations, and it will impose excessive compliance costs. (New Zealand Institute of Chartered Accountants)

Note that they currently do not keep records of vouchers provided given the $300 per quarter FBT threshold. (Wilson Parking)

Comment

Officials consider that this requirement should not apply solely to employees of charitable organisations as this would create inequity between employees of different types of entities. The WFF entitlement of an employee of a non-charitable organisation should be the same as that of an employee of a charitable organisation on an equivalent remuneration package.

To reduce employer compliance costs, officials have recommended removing the requirement that employers provide a statement to each employee who has received a short-term charge facility benefit during the year. Instead, it will be left up to employees to ask their employer for this information if they need it. It does not seem unreasonable to expect that employers will have some record, as part of their normal accounting records, of who they are providing vouchers to.

Recommendation

That the submission be declined.