Do you pay your employee(s) an allowance?
Some allowances are taxable and others are tax free.
An employer might choose to provide accommodation or pay an accommodation allowance when an employee needs to continuously work at a distant work location that isn’t within reasonable daily travelling distance of their home. Provided certain criteria is met, these can be tax exempt.
Payments made to cover meal or clothing allowances may be exempt from tax provided certain conditions are met.
Benefit allowances are payments made to employees in addition to salary or wages, such as accommodation, meal or clothing allowances. Benefit allowances also include accommodation, meals or clothing allowances when provided to the employee.
You can apply the accommodation and meal allowance rules to periods before 1 April 2015 in certain circumstances.
If you’re self-employed you can use our mileage rate to calculate the cost of using your motor vehicle for business purposes. If you’re an employer you can calculate an employee’s reimbursement when they use their private vehicle for work purposes. Employers may also use rates published by a reputable independent New Zealand source to reimburse their staff.
Payments that reimburse expenses for work-related employee relocations can be exempt income of the employee provided certain conditions are met.
Volunteers often have expenses associated with their voluntary activities either from the activity itself or travel to or from where the activity took place. Reimbursement payments based on actual expenditure or a reasonable estimate are exempt income.
A travelling allowance is paid to an employee for travel between home and work and can be tax-free providing certain conditions are met.
Reimbursing allowances are paid to employees to cover on-the-job expenses such as meals, mileage or tools. In most cases they are not taxable.
If you are registered for GST, you can claim GST credits on reimbursements paid to employees for business expenses. You cannot claim GST credits on other allowances paid to employees.