Value of Employer Provided Accommodation
IRD have released a statement (CS 16/02) on how this is to be valued.
The new approach is substantially different to the old approach and needless to say will mean that the amount by which an employee’s income is to be grossed up will most likely be considerably higher than under the old rules. In summary the new approach is:
- The Market Rental value of free/discounted accommodation is taxable income of an employee (including Woofers) – no change here.
2. What is market rental value isn’t defined and while absolute accuracy isn’t required the amount must be reasonable and appropriate. The IRD ruling suggest the following would be appropriate ways of establishing market rental value:
- Registered valuation
- Real estate agent
- Comparison of similar properties from sites such as Trade Me.
3. Where there is a big difference to the old rules is what you can’t take into account in determining the value. The major change here is that you cannot discount the value because of restrictions/requirements in the employment contract. Thus, for example, the fact an employee may be required to live on site for security reasons is irrelevant to determining rental value.
4. While accommodation for farm workers isn’t specifically discussed it appears that no discount is available for the fact the accommodation is provided on a farm as the whole concept of the new approach is that the value to be used simply looks at what the market value of the property would be ignoring all work related factors.
5. IRD expect the value to be updated at least every 3 year.
Clearly IRD are focusing on this area. If you are providing free or discounted accommodation to any employee/worker and aren’t sure what is required, contact us.