From 1 April 2015 new rules apply to determine the taxable value of accommodation. The key concept is that the taxable value of employer provided accommodation is equal to the market value of the accommodation.
The market value can only be adjusted for the following factors:
- Accommodation is shared between two or more employees
- The employee makes a contribution to the cost (e.g. off farm accommodation)
- The employee uses part of the accommodation for business purposes (e.g. administration purposes)
The IRD have advised that they will provide guidance on how market value can be determined. The current recommendation is an independent valuation.
All other reasons for reducing the value such as locality, quality of the property etc would be factored into the market value.
We will pass on any further directives from the IRD as they come to hand.
NOTE: Accommodation is exempt from gross earnings when calculating KiwiSaver contributions. Remember to 'tag' your employees by contacting the IRD if they have an accommodation allowance as part of their gross earnings
2. Employee or Contractor
Employees and Contractors have different rights and obligations under the employment legislation. Before starting an employment relationship it is important to establish whether you are engaging with a contractor or employee.
A person working under a 'Contract OF Service' is an employee.
A person working under a 'Contract FOR Service' is a self-employed contractor.
What is the difference between a self-employed contractor and an employee?
Click here to view the table.
For further details refer to http://www.dol.govt.nz/er/starting/
3. Sharemilkers & Contract Milkers
50/50 Sharemilkers are independent contractors and the 'Sharemilking Agreements Act 1937' applies to all 50/50 Sharemilking agreements.
Contract milkers are independent contractors engaged under the standard sharemilking agreement contained in the Sharemilking Agreements Order 2011. This form of contract MUST BE used otherwise you run the risk that a contract milker may be considered to be an employee. The IRD general rule is in the absence of an agreement as stated above the contract milker will be deemed as an employee.
E.g. - James' parents offer him a job as a contract milker for the 2016 season
- As it is a 'family arrangement' no documentation is prepared or signed
- James received 25% of the monthly milk cheque
- James employs staff to assist him
- James provides his own quad bikes and tractor
The IRD would view James as an 'employee' due to the lack of documentation.
- Payments made to James will be determined to be net payments and will need to be grossed up for PAYE
- May result in deductibility issues for expenditure incurred due to the employment limitation
- Could result in a breach of the Minimum Wage Act
- Penalties and UOMI (Use of money interest) exposure
Whilst PAYE is not required to be deducted there may be obligation to deduct withholding tax from payments made to an independent contactor.
Activities requiring deduction of withholding tax on payments for work/services relating to primary production including farm contract work, cultivation contract work, shearing, droving, forestry or bush work.
The only exclusions are for:
- A person with a valid certificate of exemption
- Any company EXCEPT non-resident contractors and certain agricultural, horticultural or viticultural companies
- An agricultural, horticultural or viticultural company is one whose business includes cultivation contract work
- Cultivation contract work means work or services provided under contract or arrangement
Withholding tax must be deducted from the GST exclusive amount.
When completing the GST return on a PAYMENTS BASIS the full amount of GST on the invoice must be returned not simply the amount received i.e. the withholding tax deducted is deemed to be received.
Quick Contracting Ltd issues an invoice for $1,000 + GST for trimming grape vines. QCT does not hold a certificate of exemption and is registered for GST on a payments basis.
|Less Withholding tax (15%)||$ 150|
|Plus GST on the $1,000 (15%)||$ 150|
|Net payment to QCT||$1,000|
5. Casual Agricultural Employees
A 'Casual Agricultural worker' is a person engaged on a day-to-day basis for not more than three months as a casual seasonal worker. This includes shearers and shearing hands.
PAYE is at a flat rate of 17.5% plus the ACC earner levy of $1.45 per $100 of liable earnings, therefore a total rate of 18.45%.