sign uplog in
Want to go ad-free? Find out how, here.

Terry Baucher with Inland Revenue on how FBT applies during the lockdown; Is the wage subsidy scheme available for landlords? And a look ahead to the Budget

Terry Baucher with Inland Revenue on how FBT applies during the lockdown; Is the wage subsidy scheme available for landlords? And a look ahead to the Budget
They may be property landlords, but are they a 'business' that qualifies for the wage subsidy?

By Terry Baucher

Inland Revenue has been working pretty hard to bring out material addressing questions raised by the Covid-19 pandemic. I discussed last week the new determination in relation to payments made to employees working from home.

Part of Inland Revenue’s website now specifically covers the various tax responses and policy initiatives made in response to the pandemic. 

One of these addresses the issue of whether fringe benefit tax (FBT) applies to motor vehicles during the Level Four lockdown period. 

By way of background, as people are probably aware, an FBT liability arises if a motor vehicle is “made available to an employee for their private use”. And what not unreasonably has been suggested to Inland Revenue is that during Level Four a motor vehicle is not available for an employee's private use because the only private use permitted is for local travel to access essential services. In other words, such are the restrictions around a vehicles use in Level Four that to all intents and purposes, it's not available for private use.

The Commissioner of Inland Revenue’s response to that is that the motor vehicle will still attract FBT in the usual way during Level Four. Yes, the opportunities to use a vehicle for private use have been restricted, but the test under the law is whether the vehicle has been made available for private use, not whether any private use has occurred.

And under case-law law, the position is a vehicle is made available to an employee when they have access to the vehicle and permission to use it for private purposes. Actual use is irrelevant for FBT purposes. Inland Revenue’s conclusion is therefore If a vehicle has been made available to an employee for their private use, then a FBT liability will arise for the Level Four days in lockdown.

There is a little ray of hope in that Inland Revenue go on to say that at present there's no legislative scope for the Commissioner to exercise her discretion in these circumstances. However, Inland Revenue Policy “is currently considering this matter and whether any legislative relief it should be made available”.

Now, FBT returns for the period to 31 March 2020 do not need to be filed until 31st May. So it's possible we'll hear more on what Inland Revenue have decided what should be the treatment during the lockdown shortly. And then, of course, FBT returns for the periods from 1st of April onwards won't need to be filed until after 30th of June. So in both cases, hopefully we'll get some clarity around that shortly. At present it’s a bit of the classic “Yeah, nah, definitely, maybe.”

Now usefully Inland Revenue have also gone on to address the question of travel between home and work. Now, normally travel between home and work is treated as private use. But it's clearly established law that no private benefit arises from travel between home and work if the home is also used as a workplace. In those circumstances travel between home and work is not private use of a motor vehicle.

Obviously, during Level Four many employees have been required to work from home because their place of work has been closed. Given the unique circumstances of Level Four, Inland Revenue will accept that there are sound business reasons arising from the nature of the work for the work to be performed at home. Therefore, there is a need to travel from work to home and back again. This means that home to work travel such as driving a pool vehicle home before level four and returning it when the employee can go back to work is not subject to FBT.

Taxpayers do need to ensure that the facts of their case support this approach. In other words, the employee must be actually working from home. There also needs to be a genuine private use restriction in place. If the employee is free to use the vehicle for private purposes, then FBT will be payable. Even though the employee is working from home which is accepted as being a place of work for Inland Revenue purposes.

The important thing to pick out here is that if you want to avoid FBT on the private use of vehicles, there must be a specific written restriction into either a separate agreement or in the terms of an employment agreement. The restriction must specify that an employee is provided with vehicle may not use it privately. This is a longstanding policy.

Still it’s some useful guidance from Inland Revenue on the matter. It’s probably not of great comfort perhaps to some employers who are hoping to avoid an FBT liability. But possibly if cars had to be taken home because there wasn’t a secure place for keeping them during the lockdown, an exemption could apply. But that would need also the employee to have been careful to make sure they didn't use the vehicle privately. I expect we'll hear more on this matter from Inland Revenue.

Can landlords apply for a wage subsidy?

Moving on, the government's wage subsidy scheme has paid out almost $10 billion since it was launched in March. In recent days there's been some criticism of firms that have been taking the subsidy who apparently may not have needed to do so. Several law firms have recently paid back a wage subsidy on the basis that when they applied for it, they expected to see a significant 30% drop in the revenue. But as things turned out in April, that didn't happen.

One of the successes of this policy, is that the process for claiming the subsidy and its payment administration has been very, very swift and exemplary in that regard. But obviously around the fringes, some interesting questions pop up and one is emerging now amongst tax agents about whether in fact landlords can apply for a wage subsidy.

The position on this according to the Ministry of Social Development and Inland Revenue is it applies to employers, sole traders, contractors, shareholder employees and a partner in the business. 

But note that it does not specifically mention landlords. The position would appear to be that they are covered by the sole trader option. Even so it's not going to apply to every landlord. The position we’ve reached at the moment is that if the landlord is running something that would actually meet the wider common law definition of business, then they should qualify for the subsidy.

They also have to show there's been a 30% drop in revenue. This may well happen for commercial landlords in particular who have been offering rent holidays to retail outlets and cafes who can't open during the lockdown. Similarly, residential landlords who have had tenants who've been laid off have probably met that criteria.

But the key thing there is meeting the definition of ‘business.’ It seems to me, that the sort of ‘Mum and Dad’ investor with maybe only one or two residential property investment properties is not eligible to claim the wage subsidy even if they meet all the other criteria because they're not really running a business. The nature of their activities is not sufficient to be treated as a business. That obviously will be a matter of some debate amongst those landlords who are suffering a loss of revenue.

On the other hand, people running an Airbnb may meet the definition of a business because there’s quite a bit involved in maintenance, cleaning, etc in providing furnished accommodation. Anyone GST registered is probably running a business, which would cover every commercial landlord. It would be helpful if Inland Revenue and the Ministry of Social Development between them could clarify this position between them?

A lot remains at stake and there are businesses are struggling all up and down the country so it's right that they get the right support. But equally, we don't want people to be playing the system and this is one area where it's a grey area which needs clarification.

Overall, I think that a commercial landlord and a residential investment property managing several properties are really running a small business and should qualify. How tenants might view that if they haven't seen relief from a particular landlord is, of course, another matter. And societal pressure is maybe one of the reasons behind several companies paying back their wage subsidy anyway. 

What can we expect from the Budget?

Now this week is the Budget. This is unquestionably going to be the most important in recent years from the point of indicating the direction that this government wants to see the post pandemic economy take. From a tax perspective. I'd be surprised to see many, if any, new tax measures. As I've said previously, I think the threshold income tax thresholds are long overdue for adjustment and there's an argument for doing that now as a measure of support during a recession. However, my understanding it's probably not going to happen.

What that indicates is the short-term way of using wage inflation (if we have any wage inflation) to quietly raise additional tax revenue without anyone noticing will continue. This ‘fiscal drag’ is worth about $400 million annually. Now, that said, past governments of both hues have done this down the ages. 

It being an election year directly addressing the issue of tax changes to fund the response to the pandemic is probably also off the table. We might hear some general commentary about, well, we're going to need to look at the shape of the tax system.

I would expect Inland Revenue to get some additional funding to help with auditing the wage subsidy scheme and managing the small business cash flow scheme, details of which are still pretty thin. But as everyone knows that policy was enacted in haste, although I understand some work had been going on in the background for some time. This was going to be rolled out sooner or later but probably not as soon as actually happened.

A bit of a personal disappointment is there's no formal Budget lockup this year where the analysts and journalists get to have a look at the Budget before the Finance Minister presents it to Parliament. This year only press gallery journalists will be in the lockup. As I said, disappointing but understandable. The problem is, so many people would want to be in there and it's difficult to be representative about who could be in there given the conditions. The security involved in emailing it out and the potential for leaks was, given what happened last year probably a risk, the Government didn't want to take. Anyway, I will have a full wrap up of the budget in next week's podcast.

So that's it for this week. I'm Terry Baucher and you can find his podcast on my website or wherever you get your podcasts. Thank you for listening please send me your feedback and tell your friends and clients until next time. Kia Kaha. Stay strong.

This article is a transcript of the May 1, 2020 edition of The Week In Tax, a podcast by Terry Baucher. This transcript is here with permission and has been lightly edited for clarity.

You can also listen below.

We welcome your comments below. If you are not already registered, please register to comment.

Remember we welcome robust, respectful and insightful debate. We don't welcome abusive or defamatory comments and will de-register those repeatedly making such comments. Our current comment policy is here.


Terry the IR are not running the wage subsidy scheme. It is run by msd. And you might ask how can msd audit such a scheme, given their focus is social giveaways, not finance?

Do Landlord really need a wage subsidy, shouldn't this go to the Tenants so they can continue paying the rent?
"A lot remains at stake and there are businesses are struggling all up and down the country so it's right that they get the right support. But equally, we don't want people to be playing the system and this is one area where it's a grey area which needs clarification."

Are the tenants the employee of the landlord, or are the tenants employees of the places they are employed at?

Fairly obvious they AREN'T the employees of the landlord but rather the customers of the 'rental service' provided by the landlord, and if the landlord applied for the wage subsidy on their behalf and received the payout, what would they do, give it to the tenant so the tenant can pay it back to them as rent? Tenants would get double-dipped wage subsidy from their actual employer and their landlord?

Clearly if a landlord is running a rental business (however that is determined), they are providing a rental service to customers and paying themselves a wage from the revenues they receive called 'rent payments' from the customers of the service. Landlords would typically have no employees themselves, but like any sole trader or owner-operator business are eligible for the wage subsidy scheme if their revenues have dropped 30% or more in one month.

Tenants are not customers. It doesnt work that way. If you say tenants are customer, what are the roles for property manangers and what are the roles for landlords ? So no, most landlords shouldn't be eligible for the wage subsidy unless if he owns a company that has multiple commercial business rental and he also has multiple employees to manage these buildings. Then yes. In that case, he will. But if you only owns one rental, didnt set up a business for it. Then no.

"Customer" definition:
A person who pays for goods or services from a business.
Yep a tenant is definitely a landlord's customer

From definition perspective, yes, there are some similarities between customer and tenant. But doesn't mean exactly they are complete same to each other. The landlord/tenant relationship is contractual. Both parties can determine the terms, and agree or disagree with terms.A tenant's satisfaction is inrelevant, same as the landlord's. It is unwise that a landlord treat his tenant as customer, it is also inappropriate for tenant to treat his landlord as supplier.

Landlords purchase property management services off property managers. Landlords are customers of property managers.
Tenants purchase rental accommodation services off landlords, which is managed by a property manager. Tenants are customers of landlords, with property managers acting as the landlord's agents.

Very simple.

The tenants clearly aren't "working" or "employees" of the landlord. They aren't creating value through services or products for the landlord, they are consuming the landlord's service - occupancy of a property.

But if you only owns one rental, didnt set up a business for it. Then no.

Correct, and I never claimed otherwise. Note that I explicitly said "if a landlord is running a rental business (however that is determined)". It is easy to determine that someone who owns 1 rental and didn't set up a business for it is not running a rental business.

If the landlord is a full time landlord and runs his/her rentals as a business (albeit with low interest rates) , and this is his/her only income stream then sure they should apply for it - assuming they have given their tenants a 70% decrease in rents - unlikely.

It need only be a 30% decrease in rents. That's quite plausible, especially if you have several properties and one might be paying $0 and another only half what they usually did.

Most non corporate LLs I know don't pay themselves a wage to "manage" an optimal tax rate and cashflow (avoid monthly paye). No wages equals no wage subsidy. Their option at the moment is to go interest only on their debt. If they are already operating a model that is based around interest only, then, like other barely efficient businesses, they have a problem. Any loss of cash flow (tenant, job etc) in the eyes of their debt holder, could be terminal. Bank margin call anyone...?

Yes from my perspective, a business model like landlording where for years they've been running a negative gearing regime, it just seems completely morally corrupt to then expect tax payer money after spending years or decades trying to avoid any contribution to the government.

But then landlording and principles appear to be mutually exclusive concepts based on what I've witnessed the last decade or so.

A lot of businesses use debt as a tax shield (corp finance 101), the leverage up to reduce it. But I tend to agree with you though, in an ideal world you would receive subsidy relative to your contribution.

Paying landlords, after having already covered tenants incomes, would seem like double-dipping to me.

Say I was running a business but my income was dropping as customers weren't coming, do I expect the government to give money to my customer to spend as well as me the business owner simultaneously? I think not.

We're got to be very careful here or we're going to end up with significant distorted markets (if not already!)

IO, re-read your example, it explains very well why the landlord (the person in business) gets the subsidy and no the customer. This subsidy is to help wage earners or self employed people, not customers. If you own a retail shop the subsidy goes to your employees and yourself, not the customers.
The tenants get the subsidy from their employer, not their landlords

The only way a landlord can claim is if he is receiving >30% less in rent than contracted, the money he claims is to compensate for that unpaid rent. It's the tenants who will be double-dipping if they receive 80% of their income in subsidy but don't pay their rent. The landlord can only claim for what he has not received.

" there's no formal Budget lockup this year where the analysts and journalists get to have a look at the Budget before the Finance Minister presents it to Parliament"

What else do we expect from a Gubmint that has:

  • Done the classic Friday late afternoon dump of documents that should have been in the public domain many weeks ago (Michael Reddell's continuing complaint through that time).
  • Dropped hints of a Great Reset (to what, and do we get to Vote on that?
  • Instructed Ministers to toe the Pardy Line, not give live interviews, and generally gagged 'em all, with the PM having to authorise any pronouncements
  • Consistently claimed to be the most Open and Transparent Gubmint Evah, not to mention Hard&Early (that comedy music-hall duo).


There is a lot of misinformation in the comments. If a landlord operates rental activities in their own name, as a sole trader, then by definition they cannot be an 'employee' of themselves, therefore no subsidy eligibility. If the rental activity operates through a company, then the shareholder(s) can be 'shareholder employees' if they work in the company (full or part time). Working shareholder(s) opt to be on either a 'PAYE' earnings/tax basis or a 'shareholder salary'/provisional tax basis (the final salary determined after year end when financial results have been finalised in the annual financial statements). In both situations, a shareholder employee is considered to be 'self-employed' from a tax perspective and potentially qualifies for the wage subsidy if they meet the criteria set out for self-employed persons. Be aware under all scenarios the wage subsidy is taxable income for everyone. Employers deduct PAYE in the usual manner for their employees. Self-employed people must include any subsidy received in their taxable income when calculating their tax for the year.