A Week in Review

Richard AshbyPartner, Gilligan Sheppard

Farm Related QWBA’s…

IR has recently released two draft Questions We’ve Been Asked (“QWBA”), dealing with issues in the farming sector.

PUB00237 looks at the question of the income tax treatment of allowances paid and benefits provided to farm workers. However, it is worthwhile noting that the majority of the commentary can be applied to non-farming scenarios as well.

The key points of PUB00237 are:

  • Reimbursing allowances for expenses the employee incurs in connection with their employment can generally be paid tax-free, unless of a capital/private nature (because to qualify under s.CW 17, the employee must be able to claim the expenditure if it were not for the employment limitation, which could not occur in a capital/private expense scenario).
  • Estimates of the amount of a reimbursement allowance is permitted but onus on employer to show a reasonable calculation basis has been used to determine the amount to be paid.
  • Benefit allowances are taxable as employment income to the employee and subject to PAYE. These are allowances of the type paid to compensate an employee for the conditions of their service, such as using a dangerous piece of equipment, working in a dangerous or dirty environment, or working in a remote location.
  • The expenditure an employer incurs on the two items is usually deductible provided the relevant employee’s salary or wages are deductible.
  • Non-cash benefits may be subject to fringe benefit tax, and in these instances, any expenditure incurred in providing the benefits is usually deductible, as is any fringe benefit tax paid.
  • The principles can apply equally to those contractors who are not employees but their payments satisfy the PAYE income payment definition. Naturally however, if their reimbursing allowance is exempt income, they cannot claim the actual expenses incurred.
  • PUB00237 does not apply to shareholder employees due to additional considerations required with respect to payments of reimbursing and benefit allowances they may receive.

The draft QWBA provides a reasonable table of examples of payments and their associated tax treatment, as well as some narrative examples.

The second exposure draft, PUB00309, considers the question of whether sharemilkers and contract milkers can deduct farmhouse expenditure using the approach in IS 17/02 – deductibility of farmhouse expenditure, which permitted a 20% deduction for farmhouse expenditure without the need to calculate the actual business use of the farmhouse.

The answer to the draft QWBA is yes, if:

  • they carry on a sharemilking/contract-milking business as sole traders/partnership independent from the farm owner’s business;
  • the business is of sufficient scale to require its own home office and centre of operations in their farmhouse; and,
  • their farmhouse is used in a similar manner to and to a similar extent as other farmhouses on type 1 farms (farm where the cost or value of the farmhouse is less than 20% of the cost or value of the farm).

The deadline for comment on both draft QWBA’s is 11th May 2018.

When is an Arrangement materially different???

QWBA QB 18/07 provides IR’s view in this regard, the now finalised version of the earlier draft PUB on the subject of when a particular arrangement for which a private or product ruling has been prepared, will then be considered materially different to the extent that the private or product ruling will no longer have application to the arrangement.

QB 18/07 states “The revised arrangement is “materially different” for the purpose of ss 91EB(2)(a) and 91FB(2)(a) of the TAA if, in relation to a tax type, the difference between the revised arrangement and the arrangement identified in the ruling is capable of affecting the tax outcome referred to in the ruling.”

The QWBA then goes on to state further, that “Whether the revised arrangement is materially different from the arrangement identified in the ruling will be considered on a case-by-case basis, because it will turn on the facts and circumstances of each case.”

Minimum wage increase…

Just in case you missed it, the latest increase in the minimum wage took effect from 1st April 2018. The new rate is $16.50 per hour, up from the previous $15.75. The increase also impacts on the starting-out rate and training wage, which continue to be set at 80% of the minimum wage, therefore now to be $13.20 per hour.

Richard Ashby BBus, CA, CPA
PARTNER

Em: [email protected]

Ph: +64 9 365 5532

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