New rules for employee allowances

If you are an employer that pays allowances to your employees you need to be aware there are changes that may impact your current treatment of those allowances. These changes relate to the taxation of employer-provided accommodation, accommodation payments, and other allowances and payments made by employers to cover employee expenditure. The new rules apply from 1 April 2015 however the rules can be applied retrospectively in some cases.

The key changes are:

Accommodation

• time limits on when accommodation provided in relation to out-of-town secondments and capital projects is non-taxable (up to two years for secondments and three years for capital projects);
• a multiple workplace rule that exempts accommodation provided when an employee has to work at more than one workplace on an ongoing basis;
• an exemption for accommodation provided when an employee is required to attend a meeting, training course or conference as part of their job that requires at least an overnight stay;
• confirmation that the taxable value of accommodation provided is the market rental value, less any rent paid by the employee and any adjustment for business use of the accommodation; and
• capping the taxable value of employer-funded accommodation as part of an overseas posting at the average or median rental value for accommodation in the vicinity that the employee would live in if in New Zealand.

Meals

• exempting meal payments linked to work travel, subject to a three-month upper time limit at a particular work location;
• exempting without time limit meal payments and light refreshments outside of work-related travel, such as at conferences.

Clothing

• payments provided to cover the cost of distinctive work clothing, such as uniforms, will be exempt (mirroring the treatment under the fringe benefit tax rules);

A concessional treatment allows employers the option to backdate the accommodation rules to accommodation provided from 1 January 2011 provided they have not taken a tax position before 6 December 2012 that the accommodation was taxable.

Similarly, employers have the option to apply the work-related meal rules from 1 April 2011, provided they have not already taken a tax position that the expenditure is taxable.

If you have any queries regarding allowances paid to your employees, please contact your Hayes Knight advisor.