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Employer responsibilities Ngā kaiwhakawhiwhi mahi takohanga

Backdating of tax exemption for accommodation and meal allowances

Application of new rules to past periods

You can apply the accommodation and meal allowance rules to periods before 1 April 2015 in certain circumstances.

The rules can be backdated from:

  • 1 January 2011 for accommodation, and
  • 1 April 2011 for work-related meals.

This is provided that you haven't already started to tax the accommodation or meal allowances before 6 December 2012.

This means that some allowances that were taxed will become exempt income, resulting in a refund to the employee. Any tax refund (after offsetting any tax debt of the employee) will be paid to the employee. Employers must reach an agreement with their employee if they feel entitled to any portion of this refund.

Example 1

Anna lives and works in Hamilton. In January 2013 she was sent on a 15-month secondment to Blenheim. The secondment was expected to last 15 months and did last 15 months. Her employer paid for her accommodation in Blenheim and treated these payments as taxable.

Under the new rules the accommodation would be exempt from tax. Anna's employer may now elect to backdate the application of the new rules to exempt the payments, meaning a refund of the tax paid on the accommodation can be claimed.

 

Example 2

Grace lives and works in Invercargill. In February 2011 her employer sent her on secondment to New Plymouth to assist with setting up a new site. The secondment was expected to last 18 months but actually lasted 20 months as the new site progressed slightly behind schedule.

Grace's employer provided her with an accommodation allowance which was treated as taxable, with PAYE deducted. Grace's employer isn't able to backdate the new provisions because although the accommodation allowance would be exempt under the new rules and was provided after 1 January 2011, it was treated as taxable before 6 December 2012.

Backdating can be applied on an employee-by-employee bases. If an employer and the employee(s) agree to backdate the new rules, the employer will need to provide us the following information:

  • the name and IRD number if the employee(s) it's relevant to
  • which tax years are affected
  • the employee(s) new gross earnings, and
  • the tax-exempt amounts.

Employers will also need to provide each employee with a letter:

  • confirming they have chosen this treatment
  • setting out their new gross earnings, and
  • stating the amount that is now tax-exempt for each tax year.

The employee will then need to make a request to us to:

  • amend their Individual tax return (IR3), or
  • amend their personal tax summary assessment, or
  • request a personal tax summary (if necessary).
Note

Employees should be aware that any adjustments to their income will affect any Working for Families Tax Credits, child support and student loan repayments. For example, if it's found that the employee's student loan repayments have been too high as a result of the adjustment, the employee should indicate whether they want the repayments refunded to them or treated as voluntary repayments.

 

Example

From July 2011 to June 2013 Jon was on an out-of-town secondment for two years, with accommodation provided Monday to Friday at a cost of $300 per week. Jon's employer had originally treated the accommodation as tax exempt as Jon returned home every weekend to his family.

Jon's employer provided a voluntary disclosure and treated the accommodation for the 24 months as taxable income. Jon's salary was $75,000 on top of which his employer paid the additional PAYE of $150 per week, being the grossed up amount of the accommodation, increasing his earnings by a total of $450 per week.

Jon's employer agrees to apply the new rules to his accommodation making the cost of the accommodation ($300 per week) tax exempt. Jon's employer provides him with a letter confirming the details to amend his return. Jon sends a copy of the letter to us and requests that the Commissioner amends his return to reduce his taxable income and issue a refund of the overpaid tax.

Any requests for amendments, voluntary disclosures or case-specific queries should be sent to accommodation@ird.govt.nz.