The Inland Revenue Departmenthas offered to cut penalties for businesses that admit they haven't been taxing accommodation allowances given to their employees.
It is dangling a carrot of no shortfall penalties and no use of money interest to businesses that 'fess up.
The IRD commissioner released a statement this month saying the IRD wants to fix the issue of whether tax is to be paid on the provision of accommodation, the payment of accommodation allowances, or payments made by employers for accommodation expenses for employees.
The IRD has taken a stance that these are taxable and are income to the employee and the employer must account for PAYE. This will change employee gross incomes and have consequences for Working for Families entitlements. This may also mean backdated ACC employer levy increases which are based on employee earnings.
The crackdown on employee allowances began on November 15, with a paper discussing feedback sought on options for taxing allowances for meals, accommodation, communication and clothing payments.
In the December 6 release, the IRD says businesses that 'fess up to providing accommodation (a house) or an accommodation allowance would only have to account for PAYE for the two-year period prior to the commissioner's statement release date. The IRD has also commented: "Given the previous uncertainty and inconsistency, taxpayers making voluntary disclosures will not be subject to use of money interest or shortfall penalties."
However, voluntary disclosures for accommodation payments made on behalf of the employee (ie paying employees rent direct) will have to account for PAYE for the four-year period prior to December 6.
The IRD has also said those taxpayers who have written advice given to them by the IRD saying their situation is a non-taxable one will not be pursued, but should now contact them to discuss their future tax position.
Clearly everyone will be confused now. If I have a letter advising the tax treatment of a set of circumstances, surely then you would think that would apply to exact circumstances of other tax payers. Apparently not, you need the golden ticket. I see this being challenged.
Overnight and short-term accommodation by an employee in a location other than home will generally be not taxable.