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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.