New tax rule hits bill for rebuild

An Inland Revenue decision to tax worker accommodation allowances will add to the already rapidly rising Christchurch rebuild bill, tax experts say.

There has been a chorus of dismay from the tax industry since the IRD put out a statement this week saying it intends to tax allowances and accommodation provided to employees who have to work away from home.

It also wants to make the tax retrospective, asking employers to look over their books going back as far as four years.

With a flood of outside workers expected in Christchurch to help with rebuilding the quake-shattered city, local Grant Thornton partner Geordie Hooft said it would make the job more expensive.

"It provides a disincentive and I'm concerned about that.

"It's not going to stop things from happening, it's just going to represent another cost. And the cost of the rebuild goes up and up and up all the time."

The rule change requiring employers to pay PAYE on any accommodation provision an employee gets when working in another location - particularly the decision to make it retrospective - has taken the tax fraternity by surprise.

Hooft said the move was in contrast to recommendations made by the IRD's own policy advice division last month.

The Institute of Chartered Accountants (NZICA) said it was "deeply concerned" about the new tax.

It would have a significant impact on industries which relied on itinerant workers, such as agriculture, the film industry, and the Christchurch rebuild effort, the accounting industry body said.

Acting general manager tax, Jolayne Trim, said it was a retrospective law change "of the worst kind".

"Inland Revenue is taking the chance that taxpayers will not have the resources available to question the commercial impracticality of its announcement," she said.

IRD was asking firms to voluntarily disclose payments of accommodation allowances or provision of accommodation going back two years, and where the accommodation was paid on behalf of the employee it wanted them to go back four years.

PWC said the tax treatment of accommodation provided to employees working away from home had long been subject to debate, but it had been generally accepted that the worker did not get any net benefit from it and therefore it should not be seen as taxable income.

The accounting firm also said it had "serious misgivings" about the IRD statement's lack of clarity.

Accommodation might not be taxable when it was just overnight or for a short-term stay by a worker, but taxpayers were still "very much in the dark" about what the IRD considered to be "temporary", it said.

"One wonders how Inland Revenue's own investigators will be able to apply the statement. Many employees located in Christchurch for the rebuild now face an uncertain tax position."