Accommodation
No clause
Issue: Employer-provided overseas accommodation
Submission
(Matter raised by officials)
The rule in section CE 1C of the Income Tax Act 2007 for valuing overseas accommodation provided by employers to their staff should be amended to also cover accommodation payments and accommodation allowances.
Comment
We are recommending a remedial fix to clarify that the section CE 1C rule for valuing overseas accommodation provided to employees was intended to cover both actual accommodation and accommodation payments, including allowances. The special report published on the Tax Policy website soon after the Taxation (Annual Rates, Employee Allowances, and Remedial Matters) Act 2014 was enacted indicated this intention. Currently, the rule is inadvertently limited to actual accommodation provided, which means that there is a different tax outcome depending on how the overseas accommodation benefit is provided.
In the case of accommodation payments, the specific valuation rule in section CE 1C would only be able to be applied when the allowance or other payment provided either reflects the actual cost to the employee for the accommodation or is a reasonable estimate of the expenditure likely to be incurred.
Recommendation
That the submission be accepted.
Issue: Project of limited duration
Submission
(Matter raised by officials)
The definition of “project of limited duration” in section CW 16B of the Income Tax Act 2007 should be amended to clarify that it is intended to apply to employees when their employer is the contractor or a subcontractor who undertakes the work rather than the person who has hired the contractor.
Comment
When an employee is required, because of their job, to work away from their normal place of residence, the employee can be eligible for an income tax exemption of up to two years on any accommodation or accommodation payment that their employer provides. However, when an employee is involved in “a project of limited duration”, such as the building of a dam, the employee can be eligible for an income tax exemption on accommodation of up to three years. This longer exemption reflects the likelihood that the employee’s stay at the distant workplace will be longer because of the nature of such projects.
Given that it is a relatively generous exemption, the definition of “project of limited duration” is intended to be tightly defined, focusing on work projects whose principal purpose is to create, build, develop, restore, replace or demolish a capital asset. The projects would be carried out under a contract of service between an employer and one or more persons who are not associated with the employer. It is this latter aspect that needs to be clarified to emphasise that the intention is that the employer being referred to is the contractor or a subcontractor and not the ultimate client – for example, the construction company that builds the dam or the specialists who install the turbines, not the client that has contracted the construction company to undertake the work.
Recommendation
That the submission be accepted.