Changes to Tax Treatment of Employee and Accommodation Allowances

The Government is to include changes to the tax treatment of employee allowances, reimbursements and employer-provided accommodation in a bill to be introduced to Parliament later this month.

The intention is to provide clarity to employers and to minimise compliance and administration costs.

Revenue Minister Todd McClay stated that currently, when an employer meets an employee's work expense, and there is no private benefit, then generally there will be no tax consequences. However there are occasions when the line between what is a private expense and what is solely a work expense is not straightforward.

The proposed changes include:

  • When an employee is expected to work away from their normal workplace for up to two years, employer-provided accommodation will be tax-exempt. This exemption will extend to up to three years for employees working on capital projects and up to five years for Canterbury earthquake recovery projects.
  • Accommodation or accommodation payments for those working at more than one workplace on an on-going basis will be tax exempt without an upper time limit.
  • When an accommodation benefit is taxable, it will generally be valued at its market rental value.
  • Meal payments linked to work-related travel will be exempt for up to three months. Meal payments and light refreshments outside of work-related travel (such as conferences) will also be tax-exempt.
  • Payments for distinctive work clothing will be exempt (the equivalent is where clothing is provided directly by the employer). Plain clothes allowances will also be exempt if paid to employees who are provided with a uniform but because of the nature of their current duties are required not to wear that uniform.

We will keep you posted on further legislative changes affecting employers.  Upcoming changes include the new Health and Safety at Work Bill and changes to the Employment Relations Act.  If you have any queries about how these may affect your business, please contact Shima Grice -


Written by Shima Grice at 09:00




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