Relocated Christchurch workers face unwelcome new tax rules

Workers who have relocated to Christchurch at their employers' expense risk having their accommodation costs treated as income under a new tax department ruling described by one major accounting firm as "a significant and unwelcome change in approach".

The Inland Revenue Department issued a special "Commissioner's Statement" on the issue today, saying employers will be required to count accommodation costs as income when paid on behalf of staff if they are spending any more than a few nights away from home.

"Inland Revenue acknowledges that a number of people around the country spend time working away from their home and they continue to meet the costs of their home," IRD group counsel Graham Tubb says.

"However, accommodation payments by the employers in some circumstances can constitute an additional income stream that is subject to tax.

"It is important that the correct treatment is applied."

However, KPMG tax partner Murray Sarelius accused IRD of rewriting the rules in order to deal with what appeared to be "a few extreme cases on audit".

The new position was contrary to common practice and "is stretching to justify its position in a way that applies much too broadly. The result penalises the majority of situations where there should not be an issue".

The ruling was likely to have an impact on both employers and employees who had been relocated temporarily to help with the Christchurch earthquake rebuild.

"Inland Revenue is suggesting they should be taxed on their accommodation, regardless of the fact that they and their families live elsewhere," Mr Sarelius says.

He warns that it could increase student loan repayment requirements or reduce Working Families entitlements because accommodation paid by the employer would be counted as increasing the employee's total income.

"Inland Revenue seems to have missed the modern reality of workforce mobility. Businesses needs to deploy talent and skills where required – whether to enhance productivity generally or to meet specific challenges, such as the Christchurch rebuild." 

Providing a second home

While the IRD statement says overnight or short-term accommodation costs would not be taxable, if the employer provides an accommodation allowance to staff "on an on-going basis", then those payments could be deemed to be income since the employee was effectively being provided with a second home.

"Accommodation costs are usually considered private in nature, as everyone needs shelter of some form. Often accommodation is about the employee getting themselves into a position to work," the IRD's full note says.

It claims also that while the ruling may appear to be new, such accommodation payments should have been treated as income and attracted PAYE tax payments for some years. Taxpayers who thought they had treated such payments incorrectly are being urged to make voluntary declarations.

"In many cases those making a voluntary disclosure will only be required to account for PAYE over the previous two years, and they will not be subject to use of money interest or shortfall penalties," Mr Tubb says.

The arrangements apply both to accommodation payments made on an employee's behalf and where the employee makes "payments on account" directly to an accommodation provider.

(BusinessDesk)

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16 Comments & Questions

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As a supplier of specialist technical people to organisations in the rebuild, I know for a fact these new rules, or application of the rules, will severely impact employers needing to temporarily house newcomers into the region.

Talk about kick employers when they're down! Are they trying to stymie the rebuild efforts? Certainly seems so...

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The IRD exists to shaft New Zealanders. Someone should calculate the total typical tax burden - I'm sure they would find it is one of the most onerous in the OECD once everything was added up.

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More bureaucratic madness. The issue is not whether the employee is being provided with a second home, it is whether s/he could reasonably be expected to sell their first home. Otherwise, those costs are still legitimately being borne.

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I come from the UK and am stunned at the high overall tax rates. Tax applies from the first dollar earned, unlike in the UK where the first GBP7475 is tax-free.

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IR are over reaching here. They have backtracked on a previously understood position.

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This mean-spirited Government is utterly desperate for money and will do whatever it takes to get it.

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Aim for Peter Dunne, the man at the top.

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I want Patrick Smellie to please put the following to the minister:

When someone not so far away for me, some few years ago now, worked for IRD they received way, way over-generous accommodation allowances for such stays as this "new" policy is aimed at, enforced retrospectively, and these were always treated as reimbursing allowances, non-taxable to the employee, as it should have been.

Given this, can the minister please give physical proof that over the last two years, and on principle all years before that, IRD are not themselves now in need of making a voluntary disclosure over this matter?

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What the hell is IRD doing. Not only are they clearly wrong from a legal perspective, but it is bad policy as well.

Not only that, but is contradicts a discussion document issued just a month ago by another part of IRD.

Peter Dunne - fix this now!

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Obviously a counterproductive move.
Those steering the rebuild should take another look at this.
liberte

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Peter Dunne is well past his used by date politically. Needs time in the business world to refresh.
The base idea is for business and employees to have and keep the maximum dollars in their pockets, for their decisions and expenditure, not the governments.
We cannot continue our ways where the most profitable thing to do is to do very little.

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This is crazy. Makes me sick, and just one more problem to deal with. Govt supposed to be helping business to get the country back up and running and then they come up with sort of ...............!

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I agree with most of the comments above. This is an unusal outcome. I had thought IRD would continue with the small number of cases they had on audit and leave it for the new 12-month rule in the recently released allowances discussion document to take care of the accomodation on a go-forward basis which should take care of a lot of the Christchurch situation (ie, accomodation allowances will be tax-free up to a limit of 12 months with an ability to apply to IRD to extend that where Christchurch is not not the normal workplace of the person). This later policy is a good result and provides everyone with certainty.

It does not cover the situation of someone permanently moving to Christchurch and being paid an allowance as that is a private expenditure and treated quite rightly as taxable.

Once again IRD have made a bit of a PR nightmare for themselves for the amounts involved, instead of completing the audit work they have done and moving on. It's the change in treatment of unfinished software all over again. Once IRD have published a policy they should stick to it instead of withdrawing it when they realise they don't like it. Taxpayers don't get an opportunity to rethink things when they get it wrong!

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Answer is simple. Employers don't relocate staff to Christchurch. Rebuild stalls, citizens revolt or vote National out. IRD are either told by the government they are wrong or become next in line for angry citizens to deal with - and it may be very ugly.

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Simple answer - let's just stop the Chch rebuild. Now that will mean more people going to Aussie and out of NZ and should not take long for IRD/govt to wake up to the fact that all they are doing is stuffing up the country.

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Another retrospective tax grab by a shameless IRD. If this is the direction of National's tax policy then things are getting desperate.

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