The key changes are to the taxation of employer provided accommodation and other allowances (e.g. for meals and clothing). The Bill limits the time frame for providing tax-free accommodation to employees, while working outside of their normal workplace, to between two and five years, depending on the circumstances.
We consider the proposed time limits are a pragmatic approach for dealing with the uncertainty that was created with the release of an Inland Revenue Commissioner’s Statement (CS 12/01).
We acknowledge that expenditure which has a business purpose and provides a private benefit can be difficult to deal with from a policy perspective. The policy starts from the view that accommodation is essentially private and should be taxed. In our view, this means the proposals bring within the detail of the rules situations where the business purpose is by the far the most significant purpose (i.e. the private benefit is incidental).
This means that the rules need to provide numerous exceptions and valuation rules (e.g. where accommodation is provided as part of the needs for the job) to determine an appropriate private benefit. By contrast, we believe that the current rules, as generally applied in practice prior to the issue of CS 12/01, achieve the desired policy outcome of ignoring the private benefit if this is low in value, hard to measure and not provided in substitution for salary and wages.
The Bill also extends the scope of the thin capitalisation rules, taxes certain payments to assign/transfer a lease, allows deductions for certain “black hole” patent and resource consent expenditure, and contains miscellaneous GST and other policy amendments.
KPMG’s submission discusses some of the detailed policy and technical issues with these proposals.