IRD Win Tax Dispute Over Employer-provided Accommodation

We frequently see arrangements involving people living in properties owned by an associated company and this always causes concern regarding the many tax issues that such an arrangement can cause. A recent technical decision summary heeds warning to companies providing accommodation to employees, or those associated with the company, and demonstrates just one of the many arrangements we see that can lead to significant, often unexpected, tax consequences.

In this case, the Taxpayer (a company) leased a building from Company B, with the employee and their partner being directors of Company B. The employee’s partner was 100% shareholder of Company B. The building was used partly for business purposes, and a proportion was supplied to the employee solely for their personal use as part of a contractual arrangement between the Taxpayer and the employee to meet the Taxpayer’s health and safety obligations.  Inland Revenue argued that the accommodation was provided free of charge to the employee, leading to both PAYE and GST obligations.  The Taxpayer disagreed, asserting that the accommodation was provided by Company B and the lease was for business purposes.

The key issues considered were:

1. Whether the Taxpayer provided accommodation to the employee;

2. Whether the accommodation was "in relation to" and "in connection with" the employee’s employment; and

3. The valuation of the accommodation for income tax and GST purposes.

The Tax Council Office determined that the Taxpayer had provided accommodation to the employee, which was related to the employee’s employment, because the accommodation was provided to meet health and safety obligations under the employment contract.  Therefore, the provision of accommodation was subject to both GST and income tax based on the market rental value, apportioned for the amount used by the employee.

This decision highlights the complexity of determining the tax treatment of employer-provided accommodation, especially when there is an associated with the accommodation provider.

This article is intended for informational purposes only and should not replace specific tax advice.  For personalised advice on all tax matters please contact us.

This article was accurate at the time of publishing.