Taxation of accommodation allowances

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The Commissioner for Inland Revenue just released a statement explaining their views on the income tax treatment of accommodation payments, employer-provided accommodation, and accommodation allowances.

The statement is simply intended to inform employers of their obligations and covers the provision of accommodation, or the payment of an accommodation allowance, by an employer to an employee and payments made by an employer that relate to accommodation expenditure incurred by an employee (expenditure on account).

Basically, the Commissioner states that these sorts of benefits constitute income paid to the employee and, therefore, are subject to PAYE. “This is the case whether it is paid for by an employer on behalf of an employee, paid through an allowance or directly provided by the employer,” the statement reads.

Some taxpayers have argued that when an employee maintains a home in another location, the employer-provided accommodation (or accommodation allowance) is not taxable. But the Commissioner disagreed with this interpretation.

However, the Commissioner did note a couple of exceptions to this approach. “[The provision or payment of accommodation] will not be taxable when they relate to overnight or other short-term stays by an employee in a location other than their home location in the performance of their employment duties,” they wrote. And when the provision or payment of accommodation covers a temporary shift by an employee, this may be exempt from tax.

The Commissioner recommends that employers contact their tax advisor, or the IRD, if they believe that they have adopted a different approach, and that they consider making a voluntary disclosure.

***“Guidelines for making a voluntary disclosure are contained in our booklet Putting your tax returns right (IR280) and Standard Practice Statement 09/02 Voluntary Disclosures (May 2009).”

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