Legislative fix for surprise IRD ruling

The Government will introduce legislation to make staff relocation expenses and overtime meal allowances tax free after the Inland Revenue Department today issued a surprise opinion saying they were taxable.

The IRD's legal interpretation will be a shock to many businesses who up until now have treated the payments as tax free.

Finance Minister Michael Cullen today said the quickest way to fix the problem was to introduce legislation amending the law to make it clear the Government intended the payments to be free from income tax and "where relevant" free from fringe benefit tax.

That would be done through amendments to the Tax Act, which would be inserted in the first tax bill of next year.

"The Government has decided to make these payments and allowances tax free because they are of small private benefit to the employee concerned, hard to measure and not readily substitutable for salary and wages."

The change would be retrospective for the past four years.

He said an issues paper would be released shortly so those interested could make submissions on the change.

But Institute of Chartered Accountants tax director Craig Macalister said the IRD ruling left businesses in a difficult situation.

While it was good the Government was moving to change the law, it left businesses in a position where they would be uncertain about whether they should be paying tax on the payments for the next few months.

The Government should have issued a corresponding statement saying they would not be expected to make the time-consuming payments in the interim.

- NZPA