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Allowances paid to employees can be a slightly tricky area to deal with.  Some allowances are taxable to the employee and other are tax free.

Examples of non-taxable allowances:

• Where an employee is working at a distant work location where they could not be reasonably expected to travel home on a daily basis accommodation or an accommodation allowance may be provided by the employer.  Provided certain criteria is met, these can be tax exempt.
• Meals payments if an employee is required to work away from their normal work location because they are travelling on business.  Certain criteria have to be met, and this exemption is for a maximum of three months.
• Clothing payments for distinctive work clothing e.g. uniforms or specialist clothing that isn’t reasonable suitable for personal use and is necessary for a particular job.
• Mileage reimbursement – currently mileage can be reimbursed at a rate of 74 cents per kilometre for a maximum of 5,000 kilometres per year.
• Tool allowances to compensate for on-the-job tool expenses.

Examples of taxable allowances:

• Bonus pays.
• Accommodation provided to employees – where accommodation is provided free or at less than market value to employees the difference between the market value and the amount paid by the employee is taxable.

These lists are not exhaustive.  Please contact the team at Skipper Lay if you want to check out the tax treatment of a allowance paid to an employee.

You can claim GST for the reimbursement of an employees actual expenses if:

• It is a business related expense
• You are registered for GST
• You hold a correct GST invoice

Please note if you are paying a reimbursement for business-related mileage at the IRD rate you can’t claim GST as you will not have a GST invoice and it is a reimbursement of estimated costs not a payment for actual expenses.