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Inland Revenue has issued a new statement to assist in determining the deductibility for New Zealand income tax purposes when costs are incurred in relocating employees to a distant workplace.

This may also address the common question posed by Australian -controlled New Zealand companies where Australian residents are sent to carry out work in New Zealand.

A number of Australian businesses take for granted that the living away from home allowance available to Australian employers may be available in New Zealand for New Zealand income tax purposes.

It is not.

The New Zealand tax rules are a lot stricter than the opportunities available to Australian businesses. Generally speaking, the cost of travelling to the workplace is a private expense and therefore not tax deductible.

Inland Revenue do not see themselves as subsidising your business practices. From their viewpoint, if an employee travels from Australia to work in New Zealand that is the choice of the employee or the employer. That will not necessarily make the arrangement tax-deductible.

Often it is put to us that the employee’s main residence is in Australia and the repositioning of the employee in New Zealand should therefore be seen as an additional cost related to the business activity and therefore deductible for New Zealand income tax purposes.

The new statement has been issued by Inland Revenue to clarify the position. Although it officially comes into place on 1 April 2020 it is our understanding that Inland Revenue is already working to these guidelines.

The statement covers all kinds of employer-provided travel including travel organised by the employer, travel that an employer organises but an employer pays for, travel that an employer reimburses an employee for or allowances paid to an employee over and above their salary to cover the cost of travel to a distant workplace.

A “distant workplace” is a workplace that is not within a reasonable daily travelling distance of the employee’s home and so is likely to be the case for any Australian-resident that is engaged to work in New Zealand for a company that is obliged to file New Zealand income tax returns.

Inland Revenue’s approach to payments made to employees travelling to a distant workplace is that the costs may be deductible for New Zealand income tax purposes providing:

  • the travel is one-off or very occasional
  • the travel relates to a temporary posting or secondment up to 2 years
  • the employee also generally works at a hometown workplace

With regard to the last matter, the presumption is that the employee usually works for the employer, for example in Sydney, and is sent periodically to the New Zealand workplace. Our understanding from Inland Revenue is that they are only looking at the employer rather than other entities that may be related to the employer.

Therefore, if an employee works for an Australian company that may have common ownership with the New Zealand company but is sent over to carry out work for the New Zealand company, there is uncertainty on whether the travel cost would be deductible. If you are in that situation let us know as we have applied for a general ruling on that situation.

You can give us a call on 1300 791 600 for a quick chat.

 

The information in this article is indicative of NZ tax rules and changes and not intended to be complete for all intents or purposes and does not constitute advice. It is recommended that you obtain professional advice, suited to your particular circumstances, from us before acting on anything you read.