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Inland Revenue widens subjectivity on tax treatment of accommodation payments
Inland Revenue has recently issued further guidance (with examples) regarding its new approach to the tax treatment of accommodation allowances provided by an employer to its employees. The new approach adopted results in all accommodation benefits being taxable unless the relocation constitutes a ‘temporary shift’. Whether or not a relocation is temporary in nature will be subject to several factors including the location of the employee’s family, the ‘centre of domestic life’, and, most importantly, the duration of the relocation.
The December 2012 statement issued by the Commissioner stated the previously adopted position (where an accommodation allowance would not be taxable if the employee maintained a home which was available to them in their home location) was incorrect.
In instances where the previously adopted position had been taken, Inland Revenue has requested employers to voluntarily disclose accommodation benefits provided for the past two to four years (depending on the arrangement in place) and make backdated payments of tax where appropriate.
In response to criticism received by a number of parties, Inland Revenue has now released further guidance which identifies several factors that need to be examined on a case-by-case basis to determine the temporality of the employee’s relocation, including:
• The availability of the employee’s original job in his/her home location;
• The location of their family and ‘centre of domestic life’;
• The intention to return to their home location;
• The nature of the accommodation provided by the employer;
Regardless of the above, Inland Revenue considers the duration of the relocation to be the most relevant factor, with relocations of less than six months being considered temporary in nature and relocations of more than twelve months being considered not temporary (apart from ‘exceptional circumstances’ which Inland Revenue have not provided guidance on). Relocations between six and twelve months will need to be considered individually, in light of the above factors.
Whether or not further clarification will be issued by Inland Revenue remains to be seen, as the subjective nature of the new approach suggests a higher administrative burden for both employers and the Inland Revenue.
However, we recommend all employers consider the current treatment adopted in regards to accommodation benefits provided in light of the above and consider whether further action is required.
Partner, Human Capital (Auckland)
+64 9 300 7058
Executive Director, Human Capital (Wellington)
+64 4 495 7400