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IRD backtrack confuses employers and employees with ruling that the cost of accommodation when a worker is required to work away from home is taxable income for the employee

Posted in Business

The New Zealand tax authorities are changing their mind on how accommodation allowances are taxed, and signaling the change will be retrospective.

In a Statement released Thursday, the IRD now says these allowances will be "treated as income of an employee and therefore subject to PAYE".

They also say "this is the case whether it is paid for by an employer on behalf of an employee, paid through an allowance or directly provided by the employer."

But tax professionals are unhappy with what they see as an unwarranted change - and some have called for the IRD to withdraw the Statement and have the matter clarified by Parliament.

The Institute of Chartered Accountants (NZICA) said it was "deeply concerned" about the new tax. It would have a significant impact on industries which relied on itinerant workers, such as agriculture, the film industry, and the Christchurch rebuild effort, the accounting industry body said. Acting general manager tax, Jolayne Trim, said it was a retrospective law change "of the worst kind".

"Inland Revenue is taking the chance that taxpayers will not have the resources available to question the commercial impracticality of its announcement," she said.

The IRD's change of mind will affect many companies and potentially employees. Employers will be liable for uncollected PAYE on these allowances and be required to make 'voluntary disclosures' (that is, admit to errors in previous filings) when in fact it was the IRD position that may have been in error. Those employers who followed the IRD's previous pronouncements are likely to now be held by the IRD of breaching the tax law.

The IRD's previous position was based their Technical Rulings Manual paragraph 57.11. They now say they warned everyone in 1998 that this could not be relied on.

KPMG says this is "unfair and disingenuous". They point out that current tax law says it is the "benefit" that is taxable, not the gross amount. And they point to the fact that the law was changed in 2010 to ensure only a "benefit" was treated as income. Few employees "benefit" from having to be accommodated when they are required to travel for their work.

Employees may also be directly impacted as they could see their student loan repayments increase, or their Working for Families entitlements drop as a consequence of needing to travel for work. Treating these allowances as income on a gross-benefit basis, rather than the currently assumed net-benefit basis, will surprise almost everyone affected.

Businesses who need to deploy skilled people away from home - such as for the Christchurch rebuild - will be directly affected, unless the trip is just for an as yet undefined "few days". All employer-paid accommodation on such trips will be deemed to be income of the employee.

"It's not going to stop things from happening, it's just going to represent another cost. And the cost of the rebuild goes up and up and up all the time," said Geordie Hooft of Grant Thornton.

To make matters more confusing, the IRD has also just released an Official issues paper which proposes changes for employee allowances, including accommodation payments (see Chapter 4). This paper notes that employees' accommodation expenses are generally not taxable and proposes a 12 month limit for non-taxes work-related accommodation. As such, it seems directly opposite to the position released in the Statement.

Perhaps 'policy' officials in the IRD are not talking to the 'operational' officials.

"This retrospective change in the Commissioner's position is unwarranted. The Commissioner should withdraw the Statement and advise Government on a law change to achieve clear and appropriate objectives," KMPG said in a recent note on the issue.

What the IRD said:

In summary, the Commissioner considers that accommodation is generally treated as income of an employee and therefore subject to PAYE. This is the case whether it is paid for by an employer on behalf of an employee, paid through an allowance or directly provided by the employer. However, in certain circumstances, overnight and temporary accommodation related to an employee's job will not be taxable.

The provision of accommodation or an accommodation allowance

Under section CE 1(1B), the market value of accommodation provided by an employer to an employee is income of the employee. Equally, the market value of an accommodation allowance paid by an employer to an employee is income of the employee. The employer must account for PAYE. Issues arise most often in the situation of relocation or temporary accommodation arrangements.

Taxpayers have argued that where the employee is still maintaining a home in another location, employer-provided accommodation or accommodation allowances are not taxable. Taxpayers argue this is because there is no net benefit provided to the employee; the value of any accommodation or allowance received by the employee is nil as the employee continues to pay the cost of their own house.

The Commissioner does not agree with this view.

The law does not support a net-benefit approach. The Commissioner acknowledges there has been some uncertainty and inconsistent practice, by both Inland Revenue and taxpayers, regarding the taxation of employer-provided accommodation and accommodation allowances. The Inland Revenue Technical Rulings Manual paragraph 57.11 reflected a net- benefit approach to determining the value of employer-provided accommodation and accommodation allowances.

However, taxpayers were advised in September 1998 that the Technical Rulings Manual was being discontinued and that Technical Rulings should not be relied upon as representing Inland Revenue's views or practice. In addition, the legislation has changed considerably since the relevant Technical Rulings chapter was written. The Commissioner's position is that determining market value is a practical matter involving an objective valuation. The market value of accommodation provided is the price that a willing provider would accept from a willing customer. The market value of an accommodation allowance is the actual amount of the allowance. It is irrelevant that a person may be maintaining a house in a different location.

What KPMG said:

While the IRD may seemingly have unlimited resources to expend on pursuing academic nuances in the tax law, this is not costless for taxpayers and does not contribute to the efficient administration, or integrity, of the tax system.

We welcome your help to improve our coverage of this issue. Any examples or experiences to relate? Any links to other news, data or research to shed more light on this? Any insight or views on what might happen next or what should happen next? Any errors to correct?

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35 Comments

spell check is great, fixes

spell check is great, fixes all your spelling mistakes. no on knows you cant spell.

only on eroor (one

only on eroor (one error)?
 
We have irony to spare....

vavau.to : It's all very well

vavau.to : It's all very well having a state of the art spell chequer , but what about your appallingly sloppy gramma , huh ...
 
..... get her some choccies for Christmas !
 

..." Woman are great spellers

..." Woman are great spellers " ...  is your good lady wife asleep or out of the house at the moment ?
 
ROFLMAO !

Quite right GBH..that should

Quite right GBH..that should read
Woman is great spellers.

Tch tch , Count , where did

Tch tch , Count , where did you go to school me laddo ...
 
...... it's   " women am great spellers ! "

Good gracious GBH right again

Good gracious GBH right again , however I dispute the content as I think, they am not great spellers....but ,suffices to say woman am great, on that I will not argue.

So your chatting up one of

So your chatting up one of the general ladies in the social circle, and then get the wife to imprint the phone number in her brain......?
That dude, is the stuff of masters of men.  I bow and pay hommage.

Me too , Ivan is a giant

Me too , Ivan is a giant amongst us lessor mortals .......I pay humus too ...
 
..... as for women's need to stay connected , I think it was Rene Descarte's wife who said it best : " I talk , therefore I am . "

You seem to be a tadge

You seem to be a tadge flustered and aerated ...
 
...  perhaps you should rest for a spell .....

So Ministers provided with a

So Ministers provided with a Ministerial Home for the past four years which would have had a market rent of $80,000PA need to back pay $26,400 for each year so about $105,000 plus of course the ongoing $500pw extra tax...
 
I can see Parliament overturning this silly ruling in no time!!!!!!  (Or maybe just an exemption for politicians???)

Well spotted, in fact of

Well spotted, in fact of course MPs are actually worse. If Im away from home for a week its bloody awful.  If a MP is away for 3 years has their second home with all the tax detucts to boot its OK...bet they get an exemption.
regards

No Chris, the Ministers will

No Chris, the Ministers will not have to pay the back taxes..it only to applies to workers!
Clearly the IRD have taken Bills worries about falling tax theft to heart....the chch rebuild is just too good a target not to steal as much from all involved as possible...with gst on top.
Up will go the rebuild cost by the amount stolen by the IRD and handed to Bill and John to buy votes with....wonderful move....
Let's see how many skilled Kiwi change their minds about relocating to a freezing hut near chch for months at a time to help gun nail the joint back together.

Taxpayers have argued that

Taxpayers have argued that where the employee is still maintaining a home in another location, employer-provided accommodation or accommodation allowances are not taxable. Taxpayers argue this is because there is no net benefit provided to the employee; the value of any accommodation or allowance received by the employee is nil as the employee continues to pay the cost of their own house.
 
The Commissioner does not agree with this view.
 
Time for a new Commissioner?
 
Or is he just doing as he is told?

Colin Riden - Do we actually

Colin Riden - Do we actually need a Commissioner? Life would be purringly pleasant without all these overpaid bureaucrats and think of the savings to the country. 

I could live with a

I could live with a commissioner as an honest, old school, competent and respected civil servant on a modest salary.
 
That possibly leaves some room for me to be disappointed.

Im sorry but I'd love to use

Im sorry but I'd love to use the word beginning with r to describe this commissioner.
:/
I work away from home and its hard, lonely work.
This is also one way to make it un-economic to do it. Oh and does this now mean if Im working in some god forsaken country abroad I have to pay tax on that accomodation?  So foreign earnings NZ companies have by sending employees aborad are now taxed substantially more?
Words fail me on this stupidity.
regards
 
 

Totally agree with you

Totally agree with you Steven, except that I would scale your descriptor to f***wit.

So let's ask how much tax to

So let's ask how much tax to pay, on accommodation provided by their employer, will all armed forces and police employees have to pay the IRD....and then we can start on the Naval staff...they get to enjoy pleasure  sea cruises all over the shop...food and bunk tossed in..... 

Ha - this time they have

Ha - this time they have almost gone one step too far.
 
I have stayed in some pretty seedy hotels whist away from my home - just to maintain by taxable income. That party-jumping bow-tie-wearing non-worker - needs to find a new job.
 
Absolutely disgusting. Beyond that - speechless

I wouldn't mind my salary

I wouldn't mind my salary paid as tax free expenses for housing, food, travel. Then maybe a small taxable stipend for spending money.
Cheers
 

Well as you probably know, Mr

Well as you probably know, Mr Sorel, most NZ regulatory bodies, e.g.  IRD,SFO,FMA have an excess of senior staff that are ex lawyers or solicitors. They know how the game works.
I do wonder sometimes if thier memory is up to scratch, and wether they can remember all the trust documents they signed, and advice they gave in thier junior years, whilst climbing the ladder to thier esteemed positions.
Probably , possibly, maybey not, or can't recall, would be their reply.
 
Which is why they aren't worth a tin of shit and should be ignored.
 
These people pontificate after they are established, not before.

Well, well... I see you lot

Well, well... I see you lot have had a gutfull of tax paying! About time.
Moaning does not help, ranting is useless, ditto for criticising fellow reckoners.
What we need is a revolution, a peaceful one that is.
What would happen if everyone refuses to pay tax?
Forums like this one are propitious to organizing one, anyone up for it? Or are you lot happy winging and whinning?
Oh, I forgot! Retirees get paid from the tax base, as do politicians and mothers on the DPB.
Never mind. Carry on. It provides good reading and great insight!
HGW

Our Tax system in broken ,

Our Tax system in broken , this is another case of the productive employed being shafted ,  while unemployed people live in Housing New Zealand houses for free, getting the benefit and wasting it away .
Slapping a Tax on a tradesman's temp  accomodation  when he has taken temp wotk in Chch is about the dumbest thing I ever heared. Dont we want them to rebuld the city ? 

I would take a guess that

I would take a guess that many used the old rules as a tax loophole, to be closed.
All income should be taxed effectively, even a "capital gain", then we could simplify the whole tax mess and have an effective lower rate. As it stands those on the least income pay the most tax relatively.
Cheers