Tax plans hit SMEs hardest

01:50, Mar 01 2013

Inland Revenue's latest proposals to tax employee benefits paid in lieu of salary - such as personal use of laptops and cellphones - will hit smaller businesses the hardest with extra compliance costs, employer groups say.

Both the Employers and Manufacturers Association and Business New Zealand have made submissions to the Inland Revenue Department on its plan to tax a number of work perks including computers, phones, clothing, meals, out-of-town accommodation, and carparks.

They say the move will only add compliance costs for all businesses, but especially small to medium enterprises (SME).

"It's absolutely not worth IRD proceeding with this," EMA chief executive Kim Campbell said.

A recent national survey of 321 EMA members collectively covering more than 23,000 employees found 47 per cent of employers allow the personal use of smart phones, and 35 per cent allow personal use of tablets and laptops provided for business purposes. And 72 per cent provide free carparks for staff.

"Trying to tax things like this will simply see many employers ceasing to provide them," Campbell said.

"Their employees won't be happy, employers don't want to do it, and the tax revenues collected will be at best minuscule."

The costs to SMEs of tax compliance was typically three times more per person-employed than for larger firms, he said.

In its submissions to IRD the EMA said the world was changing in terms of more flexible work arrangements with employees working from home more frequently and technology allowing people to deploy virtual offices.

"Placing rigid rules around these practises to try to lock down when mixed business/private use occurs is counterproductive and will ultimately cost the employer far more in compliance or bringing those staff back into a fixed office location," the EMA said.

Potentially it could see a reduction in the take-up of newer mobile technologies which could deliver considerable revenue for Kiwi businesses, and ultimately would reduce any tax gains, it said.

"On the one hand Communications Minister Amy Adams recently praised the workplace flexibility we now have with such devices so anyone can work partly at home or elsewhere, and the other other we have IRD saying it needed to tax these things because of the increase in working outside of the traditional work environment," the EMA noted.

Business New Zealand has said it would prefer taxing a fixed ratio of what's allowable for home and work use.

Ernst & Young tax spokesman Aaron Quintal said the test for IRD in this area used to be whether there was a personal benefit from the allowance provided, but that seemed to have now shifted to an over-arching view that all allowances should incur tax.

He was particularly concerned at the proposed tax on accommodation.

If someone had to maintain a home in Auckland, for example, while being sent to help build a new milk plant in Taranaki or work on the Christchurch rebuild, tax would now have to be paid on any employer-provided free accommodation after one year.

But if that person was maintaining a mortgage and other expenses on their Auckland home there was no real benefit to them, Quintal said.

"We think a lot of this is a bridge too far," he said.

Business New Zealand's submission calls for the suggested tax on accommodation payments and allowances in particular to be withdrawn to allow time for more formal feedback.

It said that in the construction industry, for example, projects in various parts of the country could take 18 months to two years to deliver rather than fall under the 12-month limit proposed.