On 6 December 2012 the IRD released a Commissioner’s Statement clarifying the Commissioner’s position on the tax treatment of accommodation allowances.
This appears to be a significant shift from the historic position taken by advisors and will impact many taxpayers.
The Commissioner’s position is that the provision of accommodation or an accommodation allowance to an employee is income of an employee and subject to PAYE, regardless of whether the employee is maintaining a home in another location.
The only exceptions allowed by the Commissioner are for overnight and temporary accommodation related to an employee’s job.
For many years it has been common practice for accommodation benefits or allowances to be treated as tax-free where the employee is maintaining a home elsewhere (and not renting it out). This was on the basis that the employee receives no benefit, ie, the value of any accommodation benefit or allowance received is nil as the employee continues to pay the cost of their own home. This “net-benefit” approach was reflected in the old IRD Technical Rulings Manual para 57.11. The Technical Rulings Manual was discontinued in 1998. The Commissioner does not now agree with the “net-benefit” approach.
The Statement suggests taxpayers in this position should consider making a voluntary disclosure and have advised that PAYE will only be payable on the TWO YEARS prior to 6 December 2012 and that no UOMI or penalties will be imposed.
The Commissioner’s Statement is a significant change to the way accommodation benefits and allowances have been treated in the past. If you currently provide accommodation benefits or allowances to employees you should ensure the tax treatment conforms with the Commissioner’s view.
We can assist you with making a voluntary disclosure if necessary.
To read the Commissioner’s Statement, click on the following link: http://www.ird.govt.nz/technical-tax/commissioners-statements/cs-12-01-income-tax-treatment-accomm-payments.html
If you would like to discuss any of the above further, please feel free to contact your Hayes Knight adviser directly or our tax team:
T +64 9 414 5444
F +64 9 414 5001
Shelley-ann BrinkleySenior Manager – Tax Consulting
T +64 9 414 5444