Meals
Issue: Support for proposed meal exemptions
Clause 22
Submissions
(Business New Zealand, Corporate Taxpayers Group, Council of Trade Unions, New Zealand Institute of Chartered Accountants)
Submitters were generally supportive of the proposed meal exemption, subject to various comments which are captured in specific submissions below.
Recommendation
That the submissions be noted.
Issue: Inclusion of allowance, daily allowance and reimbursement in exempt income
Clause 22
Submission
(Corporate Taxpayers Group, Deloitte, Ernst & Young)
Based on a literal reading of proposed section CW 17CB(1) allowances, daily allowances and reimbursement payments may not be included, as the section applies to “expenditure the employer incurs for or on behalf of an employee for a meal”. We suggest including a statement along the lines of, “This includes a reimbursement payment or an allowance to an employee for a meal”.
Comment
The focus of the provision is payments in relation to meals. This could be made a little clearer in section CW 17CB(1). For example, meals provided by the employer on the employer’s premises are not intended to be covered as they will remain fringe benefits and subject to any exemptions under the FBT rules. This point is discussed in the next submission.
Recommendation
That the submission be accepted and that the legislation be clarified so that the proposed coverage of the provision includes meal reimbursement payments and meal allowances.
Issue: Provision to clarify relationship with FBT rules
Clause 22
Submission
(Corporate Taxpayers Group)
The FBT rules are intended to take precedence over proposed section CW 17CB, meaning that meals provided directly by an employer to an employee would continue to be potentially subject to the FBT rules. We submit that clause 22 should be amended to clarify that the direct provision of a meal by an employer is subject to the FBT rules.
Comment
As the submitter has noted, this matter was discussed with officials before the introduction of the bill but could not be included in time for the bill’s introduction.
Recommendation
That the submission be accepted.
Issue: Ensure clarity between allowances, FBT and entertainment tax rules for on-premises meals
Clause 22
Submissions
(Business New Zealand, Corporate Taxpayers Group, Deloitte)
Further analysis should be undertaken to ensure there are no gaps between the interactions of the proposals in the bill, the FBT rules and the entertainment tax rules. (Business New Zealand)
A legislative gap remains in section CW 17CB as it is not clear how meals and refreshments provided to employees on-premises – for example, a staff meeting held over lunchtime with lunch provided. Section CW 17CB does not apply as it operates only when the employee is working away from their normal workplace. We consider there are limited circumstances when food and drink should result in taxable income to an employee, and the existing entertainment and FBT rules should be left to deal with such benefits. (Corporate Taxpayers Group, Deloitte)
Comment
This issue should be addressed by the proposed clarification of the interaction of proposed section CW 17CB with the FBT rules. The FBT rules in turn contain a provision in section CX 29 that clarifies when on and off-premises meals are fringe benefits, by reference to the entertainment tax rules.
Recommendation
That the submissions be noted.
Issue: Extend section CX 19 to cover benefits that if paid as an allowance would be exempt
Clause 31
Submission
(Corporate Taxpayers Group, Ernst & Young)
Clause 31 proposes amending section CX 19 in relation to benefits provided instead of allowances that would be exempt from income under a number of specified provisions, but not including the proposed new section CW 17CB (work-related meals). Section CX 19 should also expressly include benefits that are provided instead of allowances paid, which are exempt under proposed new section CW 17CB.
Comment
Officials agree that proposed section CX 19 should also include a reference to section CW 17CB.
Recommendation
That the submission be accepted.
Issue: Clarification: two exemptions are provided
Clause 22
Submission
(New Zealand Institute of Chartered Accountants)
The legislation should be redrafted to reflect more clearly that two exemptions are being introduced – an exemption of up to three months for meals when an employee is required to work away from their normal work location, and a general exemption for working meals and light refreshments when an employee is working off the employer’s premises. The current drafting is confusing and does not clearly reflect there are two separate exemptions.
Comment
Officials do not consider that the provision needs redrafting as submitted, but note that explanation of the two exemptions was included in the Commentary to the bill and will also be included in the Tax Information Bulletin to be published following enactment of the bill.
Recommendation
That the submission be declined.
Issue: Light refreshments on premises should also be available to part-time employees
Clause 22
Submission
(Ernst & Young, Council of Trade Unions, New Zealand Institute of Chartered Accountants)
The seven hours a day requirement appears to discriminate unfairly against part-time employees who may still be entitled to light refreshments during their working hours and whose employment duties may also require them to be away from their employment base for most of their working hours.
Comment
The time limit was designed to limit the risk of salary substitution. This risk is already partly reduced by the provision that precludes arrangements when the employee would be entitled to additional salary if the meal benefits were not provided, although it does not cover indirect salary substitution. In these circumstances the seven hours limit can be removed.
Recommendation
That the submission be accepted.
Issue: Light refreshments should be extended
Clause 22
Submission
(New Zealand Law Society)
The concept of light refreshments in proposed section CW 17CB(2)(c) should be extended to cover snack food items such as biscuits and fruit as well as fluids such as tea and coffee.
Comment
It is intended that such small snacks be exempted so specifying this in the legislation would be useful.
Recommendation
That the submission be accepted.
Issue: Scope of working meal exemption too narrow
Clause 22
Submissions
(New Zealand Institute of Chartered Accountants, New Zealand Law Society)
Proposed section CW 17CB(2)(a) exempts meals that are arranged as an alternative to a formal meeting. This section should be amended to include meals provided as part of a formal meeting. This could be achieved by inserting the words “or part of” after “alternative to”. (New Zealand Institute of Chartered Accountants)
The criteria for a working meal to be exempt income should be broadened to capture all working meals that take place as part of an employer’s business activities when an employee’s duties require them to attend and participate. (New Zealand Law Society)
Comment
Officials agree that the words “or part of” could be added to the section as suggested in the New Zealand Institute of Chartered Accountants’ submission. With regards to the New Zealand Law Society submission, officials do not consider such amendment is necessary as these situations will be covered by the legislation as drafted.
Recommendation
That the submission to insert the words “or part of” be accepted.
That the New Zealand Law Society submission be declined.
Issue: Meal provision drafting issues
Clause 22
Submission
(KPMG)
The reference to “employer’s workplace” in new section CW 17CB should be replaced with “workplace” (as that term is defined in new section CW 16B) for clarity.
Similarly the reference to “employment base” should also be replaced with workplace or alternatively “employment base” should be defined. “Accommodation base” should also be defined.
Comment
The reference to “employer’s workplace” in new section CW 17CB is necessary as otherwise employees who are working at a client’s workplace (for example, an auditor working at the client’s workplace) would not qualify for the exemption. “Employment base” is consistent with use elsewhere in the Income Tax Act, in particular in relation to sustenance allowances.
Officials do not consider it necessary to define the terms as suggested – the ordinary dictionary meaning is sufficient.
Recommendation
That the submission be declined.
Issue: Meal exemption time limit
Clause 22
Submission
(KPMG)
We support the intention of the new rule, however, see no reason why the meal exemption time limits should not match the accommodation periods. They should be aligned for consistency.
Comment
Providing an exemption for an employee’s meal costs when they are travelling away from home for work recognises that employees may have to spend more on their food and drink than they would otherwise. When an employer reimburses the cost of a work-related meal, the amount saved by the employee (in other words their normal expenditure on the meal) is arguably taxable. However, it would not be practical to carry out an apportionment each time a meal payment is made. The bill seeks to find a practical solution.
Any comparison between meal costs when travelling on a work trip and normal day-to-day meal costs is likely to be between the costs of dining out and self-catering. On short term trips an employee usually stays in a hotel, or similar accommodation, without self-catering facilities, and therefore has to buy catered food. When undertaking a longer journey or secondment, this is likely to change after a period of time. An employer is likely to be reluctant to fund restaurant meals on a long-term basis and the employee will often move to self-catering accommodation. At that point the meal costs are not likely to be significantly greater than the normal day-to-day costs at home and the case for allowing tax-free treatment diminishes.
Therefore, the rule proposed in the bill exempts meal payments linked to work-related travel for a period of up to three months. This time limit is designed to recognise that when an employee is away from their normal work location for a short period they are likely to incur significantly higher costs for meals but that these costs are likely to normalise after a period of time.
Recommendation
That the submission be declined.
Issue: Restarting of time period for exemption
Clause 22
Submission
(New Zealand Institute of Chartered Accountants)
The legislation should clarify that the three-month exemption period will begin again in situations when an employee is carrying out consecutive out-of-town secondments (in different locations).
Comment
Officials consider that the proposed provision is sufficiently clear, but propose that examples be provided in the Tax Information Bulletin following enactment of the bill.
Recommendation
That the submission be noted.
Issue: Flexibility of time limits
Clause 22
Submissions
(KPMG, New Zealand Institute of Chartered Accountants)
If the submission regarding matching the meal exemption time limits with those for accommodation is not accepted, the Commissioner of Inland Revenue should have a legislative discretion to extend the period for exempt meals. (KPMG)
In addition, the Commissioner should have the flexibility to extend the time limit in exceptional circumstances. This ability exists in relation to accommodation and should be mirrored for meals. (KPMG, New Zealand Institute of Chartered Accountants)
Comment
The accommodation extension is designed to ensure that if some serious adverse event occurs that prevents the employee from leaving the accommodation as expected and within the statutory time limits, there is no taxable impact as a result. Officials agree that this “exceptional circumstances” rule should be mirrored for meals. Officials do not agree, however, that a more general discretion to extend the time period should be permitted. The “exceptional circumstances” provision is a very restricted ability to extend, in order to ensure clarity and consistency in the rules, and a more general discretion would undermine that consistency and clarity.
Recommendation
That the submission regarding a general discretion to extend time limits be declined.
That the submission in respect of the exceptional circumstances flexibility be accepted.
Issue: Application date of meal allowance provisions
Clauses 2 and 22
Submission
(Corporate Taxpayers Group, Deloitte, New Zealand Institute of Chartered Accountants)
Before the release of the officials’ issues paper, Reviewing the tax treatment of employee allowances and other expenditure payments in November 2012, a number of employers were treating meals as tax-exempt when related to work travel, on the basis that very little private benefit arose to the employee as the meals were required for work. The issues paper determined that work-related meal payments are taxable on the basis that meal payments have an inherent private value because people need to eat. This has been subject to debate between taxpayers and Inland Revenue.
The proposed application date of 1 April 2015 creates significant uncertainty about how meal payments should be treated before that date and creates a risk that earlier positions will be challenged by Inland Revenue.
The application of the meals provision should therefore be backdated to, at a minimum, the November 2012 issue of the officials’ issues paper (Corporate Taxpayers Group, New Zealand Institute of Chartered Accountants); or preferably the statute bar, using a similar transitional provision to that for accommodation (Corporate Taxpayers Group, Deloitte).
Comment
Officials agree the provision should be backdated to 1 April 2011, subject to the employer not having a tax position that the payments were taxable. Employers will have taken different tax positions and providing the ability to elect to retrospectively apply the rules would allow the status quo to continue without the risk of audit or the need to re-open positions provided they fall within the proposed new rules.
Recommendation
That the submission be accepted, subject to officials’ comments.