IRD has employee allowances in its sights

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Last Thursday saw the release of an Inland Revenue paper which names possible changes to the taxation of employee allowances. If instituted the changes could significantly affect the landscape of teleworking in New Zealand.

Revenue Minister Peter Dunne welcomed the paper and said the current legislation can confuse businesses as to which allowances are taxable. “Essentially, the proposed changes are to make the rules easier to apply,” he was quoted as saying in an IRD media release.

The paper, Reviewing the tax treatment of employee allowances and other expenditure payments, considers how to distinguish the payments that cover a private expense, and those that do not. “Payments for a private expense can be seen as a salary substitute. In these circumstances, our starting point is that salary/wages and salary/wage substitutes should be taxed equally,” it says.

When it comes to communication costs, the paper proposes that these should be fully taxed when they combine work and private uses. “We suggest that employee expenditure payments to meet internet and other electronic communication costs should be taxed in full when meeting mixed work-related and private expenses and there is no separately identifiable work or private element,” the paper states.
 
“They are after the grey area, where people are not paying tax and their employers are not paying FBT [fringe benefit tax] on the ‘private portion’ of company paid items, such as car, cell phone, internet, whatever,” Bennett Medary, chair of NZICT (New Zealand Information and Communication Technologies Group), explained. 

However, with teleworking, it can be very difficult to distinguish between private and work-related usage. “This is simply not possible with respect to broadband and telecommunications usage in general, where our use is ‘convergent’, mixing both private and work related activity all at the same time and using the same devices…over a variety of networks,” Medary added.

Medary warns that if this change to taxation deterred teleworking, it could be highly detrimental to New Zealand’s economy.

In his view, “Trying to force and measure separation between private and work use of electronic devices and networks is increasingly impractical and offers little revenue opportunity at the margins, and so should be exempted in my view.”

The paper is available on IRD’s tax policy website: www.taxpolicy.ird.govt.nz. Submissions on it close on 1 February 2013.

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