IRD's U-turn draws criticism

Inland Revenue is being accused of making a policy U-turn that runs the risk of undermining the integrity of the tax system, eroding voluntary compliance and reducing business confidence in the tax department.

One of the issues being highlighted by tax practitioners is workers who have relocated to Christchurch at their employers' expense risking having their accommodation costs treated as income under a new tax ruling.

Polson Higgs tax partner Michael Turner said the long-held view of most taxpayers, and Inland Revenue, was that the provision of an accommodation benefit was not taxable to an employee where the employee maintained a home elsewhere.

That was on the basis there was no net benefit to the employee with them incurring all the costs of home ownership.

''Therefore, the provision of the accommodation by the employer in a different location did not leave the employee better off."

The previous approach was reflected in the historical legislation and the old IRD pronouncements, he said. It was therefore ''stunning'' that the department could issue a statement and suggest taxpayers who had treated such payments as tax-free should make a voluntary disclosure to the department and pay PAYE for the past two years, Mr Turner said.

''My prediction is there will be political fallout from this announcement with the Government forced, because of the public outcry, to legislate so the department can't follow through on its statement,'' he said.

Deloitte Dunedin tax partner Peter Truman said that sometimes in tax, each side did not see the other and it seemed this was one of those situations.

''For what is really a nothing issue from a revenue perspective, Inland Revenue's approach will be seen as disappointing and unreasonable by the tax community."

From a revenue perspective, the amounts involved were trivial in aggregate but could add up to a reasonable amount for a particular employer.

Most employees did not see travelling away from home at the employer's request as a benefit, particularly where the travel was not short-term, he said.

To tax the value of accommodation provided in those instances effectively represented an additional cost to employers but did not sit comfortably on policy grounds.

There were situations where the provision of accommodation did represent a real benefit which should be taxed, generally where employees saved money because of employer-provided accommodation. That could include farm worker accommodation or employer-provided houses at remote locations.

''There are likely to be only a limited number of taxpayers who have received long-term accommodation and have been relying on the historic position that [this] is non-taxable. For those affected, the position is disappointing and will be seen as an about-turn,'' Mr Truman said.