Distinctive work clothing
Issue: Clothing proposal should proceed
Clause 23
Submissions
(Business New Zealand, Corporate Taxpayers Group, Ernst & Young)
Extending the existing definition of “distinctive work clothing” outlined in section CX 30(2) for clothing allowances should provide greater clarity to businesses and therefore should proceed. (Business New Zealand)
The proposals ensure neutrality between the FBT treatment of distinctive work clothing and the allowance/reimbursement rules regarding the same. (Corporate Taxpayers Group)
The provision is welcomed subject to one wording suggestion (see subsequent submission regarding section CW 17CC(3)(c)(ii)). (Ernst & Young)
Comment
Officials welcome submitters’ comments that the proposed changes will provide greater clarity.
Recommendation
That the submissions be noted.
Issue: Exemption should be extended
Clause 23
Submission
(New Zealand Law Society, Waikato District Health Board)
Other employers have historically provided plain clothes that were partly exempt from tax. The submitter accepts the conditions of the exemption in proposed section CW 17CC but it should be widened to include employers who treated such allowances as partly exempt and partly taxable as a matter of practice (rather than limiting to those who specified the treatment in employment terms and conditions). (New Zealand Law Society)
The exemption should be extended to allow it to deal with other circumstances, in particular mental health clinicians. The requirement that a uniform is provided, that the allowance was in place on 1 July 2013 and reference to a portion of it having been treated as taxable should be removed from the conditions of the exemption. (Waikato District Health Board)
Comment
Although the proposed change is intended primarily to clarify the tax treatment of allowances provided to plain clothes police, it is open to other employees provided they meet the criteria set out in the provision. As many employees are required to wear their own clothing for work, the general position is that allowances for such clothing should be taxable. The proposed exemption is only intended to apply in very limited circumstances, being those where an employee is supplied with a uniform, but because of the nature of their current duties their employer requires them to wear plain clothes. Proposed section CW 17CC deals only with “distinctive work clothing”. The proposed change does not alter the tax treatment of other clothing allowances under the general rule in section CW 17 that provides for a payment to be exempt if it can be shown that it is not a private benefit.
Recommendation
That the submission be declined.
Issue: Exemption requires amendments to ensure plain clothes police covered
Clause 23
Submission
(Police Association)
We welcome the decision to provide an exemption that covers the police plain clothes allowance, however as currently drafted it will not necessarily achieve this objective. The requirements relating to an allowance having been treated as partially taxable and partially exempt, and the requirement that these portions retain a constant ratio are problematic.
Comment
Officials have discussed the exemption with officials from Police and representatives from the Police Association. The concerns regarding the current drafting chiefly relate to the requirement in proposed section CW 17CC(3)(c)(ii) that the allowance has been treated as partly taxable and partly exempt. Police historically treated the plain clothes allowance in this way, however in 1998 the taxable component was brought into salary. There are therefore concerns about whether this condition would be met.
The exemption in section CW 17CC is intended to cover police plain clothes allowances and therefore officials recommend some minor drafting changes, which have been discussed with the submitter and will be incorporated into the revised tracked version of the bill, to ensure these allowances do indeed fall within the definition.
Recommendation
That the submission be accepted.
Issue: Wording of proposed section CW 17CC(3)(c)(ii) should be revised
Clause 23
Submission
(Ernst & Young)
Proposed section CW 17CC(3)(c)(ii) refers to general terms and conditions of employment providing for part of a payment to be treated as exempt income of the employee. Technically it may be argued that no contractual agreement or general terms and conditions can determine the tax characterisation of any particular payment. To avoid uncertainty the submitter suggests it would be preferable to refer to the allowances as “tax-free” or as being receivable by employees on a net basis.
Comment
As noted above, officials are recommending some changes to section CW 17CC to ensure police plain clothes allowances fall within the exemption. As a result the wording identified by the submitter is being altered.
Recommendation
That the submission be noted and that the provision is being redrafted as a result of the previous submission.