Covid-19’s implications for company tax

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For a small tax, collecting only around $600 million per annum, fringe benefit tax (or FBT) punches above its weight in terms of the amount of angst caused to employers.

For local employers, the ongoing changes in relation to close v casual contacts, self-isolation periods and rules around when you need to stand down staff because someone has tested positive, are extremely challenging to navigate.

Especially as we head into the kiwifruit harvest season.

Employers will naturally be doing everything they can to keep their workforce safe and well so that they can continue working. And while tax generally will not be a high priority in these considerations, it is worth considering the possible tax consequences of actions employers may be contemplating (or may have already implemented).

Incentives for vaccinations

Just as “two shots for summer” was an effective incentive to get Kiwi’s vaccinated before the Christmas break, businesses across New Zealand have been offering employees incentives to get their vaccinations. This has been most commonly in the form of one-off cash payments or gift vouchers.

It’s a win-win, as employees receive the incentive and can return to work in a safe environment with their peers while businesses can continue to engage with customers and the wider community with lower risk and higher confidence.

A cash bonus paid to an employee for getting vaccinated is linked to their employment and as such is taxable employment income.

Employers should deduct PAYE from such cash incentives paid to employees, and the payments may also be subject to other withholding such as KiwiSaver deductions or student loan repayments.

If the employer wants the employee to receive, for example $100 in the hand, that amount will need to be grossed up for the PAYE and other deductions to calculate the gross income to report to Inland Revenue. For an employee on the 33 percent tax rate, this is effectively a 49.25 percent increase in the overall cost and will be more once KiwiSaver etc are taken into account.

Where a non-cash benefit such as a supermarket voucher or Prezzy card is provided instead of a cash payment, these will be subject to fringe benefit tax (FBT), unless the employer qualifies for the de-minimis exemption that applies to unclassified fringe benefits.

This exempts unclassified benefits where:

  • the value of unclassified benefits each employee receives does not exceed $300 per quarter for a quarterly FBT filer or $1,200 per annum for an annual FBT filer;
  • and the total taxable value of all unclassified benefits provided to all employees does not exceed $22,500 in the last four quarters (or per annum for annual filers).

If either of these thresholds are exceeded, all unclassified benefits, including any vouchers provided for vaccinations, are subject to FBT.

Businesses across New Zealand have been offering employees incentives to get their vaccinations. This has been most commonly in the form of one-off cash payments or gift vouchers.

Some employees will be required to be vaccinated to be able to continue working, because any incentive provided by employers is not linked to reimbursing the cost of getting the vaccine. The exclusions from FBT and PAYE that would usually apply where the employer covers the cost of flu jabs for employees will not apply.

WFH allowances

Under the current Red setting of the Covid-19 Protection Framework, there are many employees that are either working from home full time or who are doing day or week about in the office to minimise the risk of large numbers of employees either getting Covid-19 or being considered close contacts.

Inland Revenue has issued guidance (in Determination EE003) on when allowances paid to staff to reimburse them for the extra costs incurred while working from home can be treated as tax free.

This includes general reimbursing payments as well as specific ones for telecommunications costs and to cover the cost of the employee buying equipment to use at home.

If this is something you have done, or are considering, it is worth reading this and getting advice on the tax treatment of such payments.

Related: Don’t be penalised by excessive fringe benefit tax

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Andrea Scatchard
Andrea Scatchard
Andrea Scatchard is a Tax Partner at Deloitte, based in the Bay of Plenty. She can be contacted on ascatchard@deloitte.co.nz

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