Issue: Extension of FBT health and safety exemption to reimbursing payments made by employers
(Corporate Taxpayers Group, Ernst & Young, New Zealand Institute of Chartered Accountants, Tax Team)
Currently benefits provided to employees related to their health and safety are exempt from FBT under section CX 24. This would include the provision of safety equipment and clothing. However, if the employer were to provide the employee with an allowance to purchase their own safety gear, this amount could be taxable on the basis that it would not meet the definition of “distinctive work clothing”. The lack of neutrality between the FBT and allowances treatment is not desirable. Other items raised by submitters as falling under the FBT exemption but not exempt under the allowances/reimbursements treatment are eye and hearing tests, and associated aids, and influenza vaccinations.
Submitters note there is a disparity between the FBT rules and the allowance/reimbursement rules in relation to the treatment of health and safety-related benefits. Officials recommend further consideration of whether there should be greater alignment of the two sets of rules. However we do not recommend making any changes in this bill. This is because further analysis and consultation will be required to determine the potential effect of any such changes, and as noted below in relation to a submission regarding eye care, consideration may need to be given to whether certain items should continue to fall within the FBT exemption.
That the submission be declined.
Issue: Eye care payments
(Police Association, Tax Team)
There should be an exemption for reimbursement payments for eye tests for employees who spend at least half their working day on VDU duties. (Police Association)
There should be a rule in both the FBT and PAYE (allowances) rules to exempt from tax a portion of vision aid (glasses or lenses) costs. This could be done by either inserting specific eye care provisions or a general health and safety exemption which includes eye care. Any such provision should have retrospective application. (Tax Team)
Submitters note there is currently a disparity between the FBT and reimbursement (PAYE) rules regarding the treatment of costs of eye examinations. The FBT rules contain an exemption from FBT for benefits related to health and safety, irrespective of whether these benefits are provided on or off the employer’s premises. This FBT exemption came about because various health and safety benefits were exempt if provided on the employer’s premises but not if they were provided off-premises.
When this amendment was introduced in the Taxation (Depreciation, Payment Dates Alignment, FBT and Miscellaneous Provisions) Act 2006, the Commentary to the bill and the subsequent Tax Information Bulletin (Vol 18, No 5, June 2006) made it clear that eye examinations were something that was contemplated as covered in appropriate circumstances. This was largely in relation to employees working for periods at VDU computer monitors.
We note that the most recent advice from the (then) Department of Labour (Guidelines for using computers, November 2010) states that several long-term scientific studies comparing computer users and non-computer users have shown that natural eyesight deterioration is not necessarily increased through computer use. The Guidelines also state that it is not a legal requirement for an employer to pay for an eye examination, although it may be good staff relations in circumstances where an employee is required to spend a significant amount of time at computers and/or monitors.
The cost of eye examinations and corrective lenses are not considered exempt when paid to the employee by way of reimbursement rather than paid directly by the employer. As noted above, when paid directly by the employer, they fall within the FBT rules, which contain an exemption from FBT for health and safety benefits. If paid by the employee and then reimbursed by the employer, the question of whether they are taxable is determined by reference to section CW 17.
The key determining factor is whether the expenditure would be deductible to the employee (if it were not for the limitation on claiming employment expenditure). What is deductible is determined by referring to the general deductibility rules in section DA 1 and the limitations contained in section DA 2. The issue for eye examinations and corrective lenses is the private limitation, which essentially means payments of a private or domestic nature will not be exempt income because they arise from the employee’s personal circumstances rather than from their employment.
It is therefore possible that consideration needs to be given about whether, in fact, eye examinations and payments for corrective lenses should fall within the health and safety FBT exemption. As noted in relation to the general submission on the extension of the FBT health and safety exemption to allowances and reimbursements, this is something that requires further consideration and therefore officials do not recommend proceeding with this matter in this bill.
That the submissions be declined.
Issue: Travel costs for FIFO workers
At present it is unclear whether an FBT liability is created when an employer transports a fly-in fly-out worker to and from the workplace. We consider many employers would be guided by the accommodation treatment and apply the net benefit test. Such travel should be treated as non-taxable if there is no private benefit to the employee. This is a cost to a business from locating employees to carry out their duties in typically high risk areas. This can be contrasted with the arguments for taxing accommodation, which is a necessity of life.
The intention of the review and the proposed legislation is to deal with the rules regarding the treatment of employee allowances and other expenditure payments, not fringe benefits. The FBT rules are not being altered so, to the extent to which the costs referred to by the submitter give rise to a fringe benefit, which may or may not be taxable, the position remains unchanged. The submission is therefore outside the scope of this bill but this does not preclude it being considered at a later time if there is sufficient concern from affected parties.
That the submission be declined.
Issue: Minor drafting matters
(Ernst & Young)
The word “on” should be removed from the opening words of proposed section CW 17CB(5)(a) as it is duplicated in the following subparagraphs.
There appears to be a duplicated reference to “distant workplace” in the proposed section YA 1 definition of that term.
Officials agree that these references are duplicated and can therefore be removed.
That the submission be accepted.
Issue: Other minor drafting matters
Clauses 12 and 20
The reference in new section CE 1C(1) should be to new section CE 1B(1).
The reference to “for 1 or more nights” in the definition of “period of continuous work” appears to be redundant.
New section CW 16E(b)(ii) appears to be redundant as the two-year time limit is already explicit in the definition of out-of-town secondment in new section CW 16B(4).
Officials agree that the reference in CE 1C(1) should be amended as suggested. Officials do not consider the remaining suggested changes are necessary.
That the submission regarding CE 1C(1) be accepted.
That the remaining aspect of the submission be declined.