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Inland Revenue

Tax Policy

Review of allowances

Clauses 34, 35, 547, 548 and 616


(32 – KPMG, 38 – New Zealand Council of Trade Unions, 46 – Employers and Manufacturers Association (Northern), 54 – Business New Zealand, 67 – New Zealand Institute of Chartered Accountants)

There should be a general review of allowances to determine their tax status. This would help to remove uncertainty about the tax treatment of other allowances. The Commissioner promised a review back in 1996. The appropriate starting point for a review is general consultation under the generic tax policy process to determine what general principle should apply.


Officials are not averse to the idea of a general review of allowances under the generic tax policy process if it is shown to be warranted. We have been endeavouring to establish whether there is a problem in practice. Based on the feedback we have received on whether a wide range of non-taxable allowances would suddenly become taxable, we do not consider a general review to be warranted. Furthermore, there are very limited resources available to undertake such a review given the significant number of projects already on the tax policy work programme.

It is important to note that the bill does not remove the more general provision that determines whether allowances are tax-free or taxable. Nor does it affect those allowances, such as additional transport costs, that already have their own exemption. All it does is carve out two more allowances to ensure that they are non-taxable when the general provision might otherwise suggest that they were taxable.

To help determine whether other allowances are non-taxable, Inland Revenue intends to finalise the interpretation guideline of the current law in this area that was first circulated for comment in late 2007. This guideline was a key outcome of the review that the Commissioner indicated in 1996 would be undertaken given concerns following changes to the legislation in 1995.

Although it ultimately depends on the detail of each specific case, it would appear on the information available that many of the examples of allowances raised to date would likely continue to be non-taxable. During our various rounds of consultation on the proposed legislative changes, officials asked whether there were other allowances that, like relocation and overtime meal payments, needed to be specifically legislated as non-taxable. The only concrete example has been the sustenance allowance raised by Deloitte on behalf of NZ Post, which we are recommending be included in the legislative changes. This is discussed later in our responses.


That the submission be declined.