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Inland Revenue issues Revenue Alert about voucher-based salary packaging arrangements

Inland Revenue has issued a Revenue Alert advising that voucher-based salary packaging - an arrangement whereby part of a person's wage or salary is replaced by vouchers - may constitute tax avoidance.

Revenue Alerts are issued by the Commissioner of Inland Revenue to provide information about significant or emerging tax planning issues.

Group Tax Counsel, Graham Tubb, said that the Commissioner's view is that the commercial and economic reality of certain voucher schemes are the equivalent to wages or a salary paid to employees.

"Inland Revenue is focusing on particular arrangements, on a case-by-case basis, in which a person has entered into an employment contract but elects to substitute part of their regular income for vouchers of an equivalent amount."

"The vouchers are often in the form of a debit card and can be used to pay for things such as vehicle, groceries, and other household expenses instead of taxable income," Mr Tubb said.

Under such arrangements, vouchers are not treated as income for the employee and PAYE is not deducted. They can be used by people to reduce their child support, student loan or KiwiSaver obligations or claim a larger Working for Families Tax Credit entitlement. Employers who offer vouchers to their staff can reduce their contributions to KiwiSaver.

"Employers can also claim GST on the cost of purchasing the vouchers but GST is not returned to Inland Revenue on their distribution to their employees so there is a loss to Inland Revenue and taxpayers," Mr Tubb said.

"Failure to return the correct amount of tax to Inland Revenue can attract serious penalties. Anyone who considers they may be at risk should consult a professional adviser and consider a voluntary disclosure before it is too late."

Read Revenue Alert RA 13/01 Salary Packaging - reducing income from employment by replacing part of salary or wages with vouchers