The rules around employee allowances changed from 1 April, 2015.
The category of employee allowances relates to payments that are made to an employee in addition to their wage or salary. Common allowances include clothing, food and accommodation.
The IRD moved to clarify the area around employee allowances largely as a result of so many employees relocating to Christchurch to help with the rebuild although these rules apply anywhere in New Zealand.
Accommodation payments are tax exempt for employees who are:
- required on on out of town secondments for up to two years (three years if the employee is required to work on a capital project)
- required to work at multiple workplaces as part of their role where one of the workplaces is beyond a reasonable travelling distance from their home. There is no time limit on this exemption.
- required to attend conferences, training courses and meetings as part of their role which require an overnight stay. In this case, the proximity to home is not a factor. Some courses may be held locally but require employees to stay overnight for team-building or networking reasons.
Meal allowances are tax exempt for employees who are required to attend conferences, training courses and meetings.
Meals consumed whilst on work-related travel are also tax exempt for up to three months. The three-month time limit runs from the date the employee starts working at the workplace and extends for as long as the employee works continuously at that location.
Payments to cover working meals and light refreshments when working off the employer’s premises continue to be exempt without any time limit.
The IRD has also taken the opportunity to reiterate rules around clothing. Only distinctive work clothing is tax exempt. This is clothing that has the employers logo permanently and prominently displayed or has a colour scheme, pattern or style that is readily associated with the employer.
In addition, specialist clothing that isn’t reasonably suitable for private use and is necessary and peculiar to a particularly occupation may be exempt. This might include uniforms, overalls and protective clothing. There is a special report on the IRD website which you can access by clicking here.
We continue to caution anyone from claiming work related clothing without checking with us first.
The IRD has cautioned that any allowances made as a salary trade off will not be exempt from tax and the Fringe Benefit Tax rules (FBT) will still apply.
This nature is general in its application. If you have employees who may be impacted by these new rules and want to check the tax situation, please contact us for a confidential discussion.