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Inland Revenue

Tax Policy

Chapter 4 - Accommodation payments

  • We suggest that employee expenditure payments to meet an employee’s accommodation expenses during work travel away from the employee’s normal workplace should be exempt from tax, subject to a 12-month upper time limit at a particular work location, with a power for the Commissioner to extend that time limit in certain exceptional circumstances.
  • When an employee is provided with accommodation by their employer at or near their normal workplace, the value of the accommodation should be taxable to the employee based on the market rental value of the property, after taking into account any employee contribution to the cost of the accommodation.
  • When an employee has more than one permanent workplace for the same job, one option is not to tax employee expenditure payments to cover accommodation costs at one workplace.
  • A valuation method other than market rental value may be needed to establish the taxable amount when the accommodation is in an overseas location – for example, a valuation by reference to comparable New Zealand accommodation.

4.1 Once the private element of an employee expenditure payment is identified, a key issue is to determine the value which should be taxed.

4.2 Identifying the taxable value will often be straightforward. For example, when the entire expense the payment meets is private, the whole of the employee expenditure payment should be taxed. However, problems arise around identifying the taxable value when the payment is not wholly to meet a private expense and there is also a work element.

4.3 This chapter considers issues around how the private element of accommodation payments or payments to meet housing costs should be valued. It includes payments to meet the employee’s accommodation costs, both at their normal place of work and when on a work journey. It also looks at issues that arise when, rather than making an accommodation payment, the employer provides the accommodation to the employee directly.

Policy issues in considering accommodation payments

4.4 Accommodation is a fundamental human and personal need and will normally be “private or domestic expenditure” as defined in CIR v Haenga.[14} Employees need accommodation of some form to provide them with the necessary shelter and facilities for eating, washing and sleeping as part of their normal day-to-day living. Expenditure on employee accommodation is not usually incurred in the income-earning process. Instead, it merely puts an employee in the position to be earning income. See, for example, Case G57[15} when the court held that the lodging costs of a mussel farmer were not deductible because they were to put him in a position to tend his mussel farm for the production of income and were not incurred in gaining or producing the income from the farm.[16}

4.5 Consequently, when an accommodation payment is provided to meet an employee’s accommodation costs, it could be expected that the full amount of the payment would be taxed. Alternatively, if the employer provides the accommodation, the starting point ought to be that the accommodation benefit is taxed when the employee does not pay full value for using it. The taxable amount can generally be considered to be the market value of the accommodation less any contribution from the employee. Market value is usually regarded as equal to the market rental value of the property.

4.6 If the accommodation payment is simply paid as part of an employee’s remuneration package, the taxable amount should be the full amount of the payment. There is little difference between salary which can be used by an employee to pay his or her rent or mortgage and a cash payment to do the same. Therefore, no adjustment should generally be made to the gross amount of the payment. Similar considerations apply if the accommodation is provided by an employer.

4.7 The following paragraphs consider how the taxable amount might vary in different circumstances and what adjustments might need to be made – both when provided by way of an accommodation payment to meet an employee’s costs, or by an employer providing the accommodation.

4.8 Consistent with the approach adopted in relation to meal payments, our suggestions about the amount to be taxed take into account the following considerations:

  • any variation in treatment, including to help identify the overall private element, should be easy to measure; and
  • not taxing the full payment should not encourage salary substitution.

4.9 We have identified a number of situations when it seems appropriate to tax less than the full value. These are:

  • Accommodation during temporary work travel – When the employee is temporarily working away from his or her normal place of work. An example of this is when an employee who lives and works in Wellington is required to stay overnight in Auckland in the course of his or her job. A further example is when an employee who lives and works in Auckland is required to work in Christchurch for a month and is reimbursed the cost of his or her motel room.
  • Accommodation provided because of the needs of the job – When the needs of the job mean an employee is required to live in a particular property in order to carry out his or her work duties. An example of this is an on-site caretaker or school hostel warden required to live in a particular property because he or she is on call out of working hours and needs to respond immediately.
  • Other circumstances – There are also a limited number of other circumstances that do not fit easily within any general rule and which may warrant separate consideration. Examples include employees with more than one permanent workplace for the same job and employees working in countries outside New Zealand.

Accommodation during temporary work travel

4.10 “Temporary” means that something is only expected to last for a limited period of time. So, temporary work travel concerns travel an employee undertakes because of the needs of the job that is only expected to last for a limited time, usually for a relatively short period. When an overnight stay is required, the travel costs include the cost of the employee’s accommodation.

4.11 A payment to meet accommodation costs incurred when an employee is required to stay in temporary accommodation because of work requirements may be for an overnight stay on a work trip away from the employee’s normal workplace. Alternatively it could be for a more substantial temporary secondment to a workplace in another city. The costs will usually be additional to the employee’s normal day-to-day accommodation costs, assuming the employee is staying temporarily away from the place where he or she lives.

Salary substitution

4.12 Meeting an employee’s accommodation costs is unlikely to lead to salary substitution when the employee is travelling temporarily on a work journey, as long as the payment is closely linked to the amount of the expense. Even if the employee has not retained a property at the normal place of work, there is unlikely to be salary substitution.

4.13 However, there may be salary substitution when an employee can be paid a tax-free employee expenditure payment rather than salary or wages. A recent illustration of the risks in this area can be seen with the Australian “Living Away From Home allowance” (LAFHA)[17} tax rules which the Australian Treasury reports have been used by employees to substitute large tax-free allowances in excess of actual expenditure on accommodation and food for taxable salary.

4.14 The LAFHA rules have been changed to address this by making the qualifying criteria more stringent and by setting an upper time limit for paying the allowance at a particular workplace.[18}


4.15 We have identified several options for establishing the taxable value of accommodation payments when an employee has to travel temporarily away from his or her normal place of work requiring an overnight stay.

4.16 Making a specific adjustment for costs incurred by an employee when they retain a property elsewhere is not a practical option. This approach would present uncertainty and very significant administrative and compliance issues for employers, employees and Inland Revenue. Employers would have to make an on-going assessment of an employee’s personal circumstances, because these might change, and make subjective judgements about personal benefit and intentions. Employees would have to be prepared to subject their personal circumstances to scrutiny on an on-going basis in order to justify the tax-free treatment of business travel expenses. Inland Revenue would also have to administer and apply the law taking into account the individual circumstances of employees and make judgements which could appear to be arbitrary or inconsistent.

4.17 This approach would also present significant fairness or equity issues within the tax system. Employees working side by side who are incurring similar business travel expenses could find themselves with different tax outcomes depending on their personal circumstances and how those are assessed in determining the taxable element of any accommodation payments. Ultimately, there is a private benefit involved and the longer the payment continues the less tenable the argument that the retention of the other property is an extra cost created by the secondment and the more it is likely to be a personal choice of the employee.

4.18 With these factors in mind, the options we are considering are:

  • Exempt an accommodation payment made when working temporarily away from the employee’s normal workplace – This option recognises that in the majority of cases, temporary accommodation costs are work expenses that are wholly additional to the employee’s normal day-to-day household costs. Full exemption would remove valuation issues, such as determining what might constitute “additional costs”.
    However, because this option does not set an upper time limit for making a tax-free payment, it presents a significant fiscal risk in allowing an allowance payment to be substituted for salary, especially if it becomes common to treat relocations as temporary in the first instance. In the longer term, an employee is likely to want to “normalise” their lifestyle in the new location and reduce their accommodation costs. Under this option, an employee who has been permanently relocated could receive an unlimited tax-free payment that would not take account of this and the very real private benefit he or she would enjoy.
  • Exempt an accommodation payment made when working temporarily away from the employee’s normal workplace, but subject to an upper time limit – Another option would be to cap the exemption by reference to an upper time limit. This would have the advantage of removing any requirement to compare accommodation costs in the temporary and normal workplaces yet ensure the exemption covers only temporary changes in workplace. This is the approach adopted by the United States of America when the employee is working away from their “tax home”, in Australia when an employee is paid a LAFHA (both with a 12-month time limit) and the United Kingdom when an employee has to work at a “temporary workplace” (with a 24-month time limit).
    In the case of meals, employees may adjust their spending at the new workplace relatively quickly to minimise their additional expenses. However, it will take longer for them to regularise their accommodation costs, which may continue to be additional to their day-to-day expenses at their normal workplace. It would, therefore, be appropriate to set an upper limit for accommodation payments that is longer than for a meal payment. There is a three-month time limit for tax exempt accommodation payments provided for under the relocation exemption.[19} However, if the employee is not permanently relocating, a 12-month period would appear reasonable. As already noted, this is the time limit adopted by the United States of America and Australia for similar payments.
    One drawback with this approach is that a time limit creates a “cliff edge”. Under the option, any time limit would also have to be linked to an intention that the employee is temporarily away from their normal workplace. Without this test, all employees could receive a tax free accommodation payment within the upper time limit, whatever the circumstances.
  • Exempt an accommodation payment made when working temporarily away from the employee’s normal workplace, subject to an upper time limit and a power to extend the limit in certain circumstances – A variation on the previous option would be to give the Commissioner powers to increase the tax-exempt time period in prescribed circumstances – for example, when the employee is required to continue working at the temporary workplace for a longer period due to exceptional circumstances.
    This would provide employers and employees with a safe harbour while allowing additional flexibility in limited circumstances when the temporary accommodation costs continue to be additional to normal day-to-day expenditure. The Commissioner’s discretion would need to be restricted to well-defined and limited circumstances.
    Further consideration would need to be given to these circumstances, but initial thoughts are that they might encompass extraordinary events outside the control of the employer and employee that arise after the employee has started working at the new work location. These might include circumstances when a contract originally scheduled to finish within the upper time limit overruns because of changes made by the customer or an unforeseen event for example, a fire or natural disaster, that requires the employee to continue working at a particular work location beyond the upper time limit.

Preferred option

4.19 On balance, our preferred option is to exempt from tax any accommodation payments when an employee has to work temporarily away from their normal workplace overnight, subject to an upper time limit of 12 months, with a Commissioner power to extend that limit in exceptional circumstances. This would satisfy the criteria that the taxable amount should be easy to measure and be unlikely to lead to salary substitution. Any changes to the tax treatment would also apply to situations when the employer provides the accommodation, rather than makes an accommodation payment, to ensure consistency of treatment.

Accommodation provided because of the needs of the job

4.20 A further scenario involving an accommodation payment or provision of accommodation by the employer is when an employee is required to live in a particular property because of the needs of the job. This is not just because it might be more convenient for the employee to live in that location, but because the job cannot be performed effectively without the employee living in the particular property. Very few employees will be in this position.

4.21 When the employer makes an accommodation payment to meet an employee’s accommodation costs, it is unlikely that the needs of the job mean the employee has to occupy a particular property. The fact that the employee has arranged their own accommodation means that they are likely to have had a choice about where they can live. However, rather than paying an allowance, the employer may provide the employee with accommodation – either a property the employer owns, or one that it rents for the employee to use. The following discussions are, therefore, more relevant to that scenario.

4.22 Modern communications mean there are likely to be very few jobs that require an employee to occupy a particular property even if an employer chooses to provide one. When on call, most employees can use cell phones to cover out-of-hours duties and a car means they can travel where they are needed relatively quickly. However, there are a small number of occupations when the needs of the job mean an employee must live in a particular property. For example, a farm worker who has to live on the farm in case livestock need attending to at night.

4.23 There will also be other occupations when the employer will expect the employee to occupy a particular house so they are better able to undertake their duties. For example, a rural police officer who is required to live adjacent to the police station, or a diplomat who occupies a particular property in an overseas location in order to undertake official functions.

4.24 In these circumstances the employee might be occupying accommodation they would not otherwise choose to live in. This might be a particular location or particular property. The property might be in a more expensive suburb (issues around accommodation provided when working overseas are considered separately later in this chapter) or to meet work needs might require much larger or more lavish accommodation than the employee would normally live in.

4.25 In most cases, using market value should not cause a problem because this should broadly reflect the value of the private benefit to the employee. However, some large tax charges can potentially arise. There can also be an impact on the employee’s entitlement to social assistance, such as Working for Families, and their liability for child support, or student loan repayments.


4.26 While there may be some significant drawbacks to “living on the job”, an employee for whom the premises are their permanent residence will still obtain a substantial private benefit even if there is a work need for him or her to live in the property. With this in mind, we have ruled out introducing a full exemption in these circumstances.

4.27 Instead, we have identified the following options:

  • Tax the full value of any accommodation payment or employer provided accommodation, adjusted for a range of factors – This option would mean the taxable value of any accommodation payment made by the employer to meet the accommodation costs or market value of the employer-provided property would be adjusted down depending on a range of factors. These factors might be linked to the property, such as location and state of repair, or factors linked to the job, such as the inconvenience the employee suffers from having to live in employer-provided accommodation.
    If market value is based on the market rental value of the property, then this is likely to adjust automatically for factors linked to the property. For example, a property in a remote area is likely to have a significantly lower value than a similar property in a city suburb. Similarly, a property located in a particular work location may also affect the rental value. The quality of the property is also likely to be reflected in the market value.
    There are also valuation factors linked to the employee and his or her job. These might reflect the obligation on the employee to live in a particular property he or she might not otherwise want to live in or a requirement to live close to the job. These factors are unlikely to be reflected in the value of the property because they can vary between individuals, depending on their perceptions and personal circumstances. However, when taking up employment with provided accommodation, an employee will often take this into account in his or her decision to take the job. An employer will often factor this in when setting the overall remuneration package.
    One of the policy criteria is that the overall private benefit to the employee is recognised. Assuming market rental value reflects the value of the particular property and the wider remuneration package reflects any disadvantages particular to the employee, arguably, no further adjustment should be made to the market value of the property or to the taxable amount of any accommodation payment.
  • Cap the taxable element of any accommodation payment or provided accommodation at a benchmark value – This option would link the taxable amount to standard values: for example, the market rent for a typical house or flat in a particular reference location. If the rent in the work location is greater than in the reference location, the taxable value would be capped at the reference amount.
    An advantage of this approach is that it avoids large tax charges arising when an employee is obliged to live in particularly expensive locations where they would not otherwise live, but for the needs of the job.
    However, this option would require reference properties to be identified, which would be problematic. This would have to be a fairly broad brush approach that would not recognise differences between particular properties, other than at a high level (for example, number of bedrooms). A further disadvantage is that it would mean the full private value might not be recognised which could provide an incentive for salary substitution at the margin.
  • Cap the taxable element of any accommodation payment or provided accommodation at a proportion of salary – The taxable amount could be capped at a proportion of the employee’s salary or wages. Consideration would need to be given to what that proportion might be. However, it could, for example, be linked to the average ratio of rental values to income, which might be around 25 percent of gross income.
    An advantage of this approach is that it avoids large tax charges arising when the employee has to live in a property with a value out of all proportion to the costs they would normally otherwise incur and which distorts the value of their remuneration package. It would ensure that any tax charges outside the control of the employee remain affordable and do not distort their income for Working for Families, and other social assistance and liability purposes. It would also ensure that in most cases the private benefit element continues to be recognised.
    When the employee has a variable reward structure (for example, because they are rewarded in part through overtime or performance pay) it might mean there would have to be an end-of-year adjustment to the taxable amount if a cap has operated during the year.

Preferred option

4.28 Our preferred option for job accommodation is to continue to base the taxable amount on the full market value of the property or accommodation payment. If linked to market rental value for a particular property this would broadly ensure that the private benefit to the employee, which forms part of his or her overall remuneration package, is properly recognised, without introducing new complicated calculations and exemptions which would be hard to apply or create inequitable or inconsistent outcomes.

4.29 Any circumstances particular to the property – for example, remote location or poor quality of the housing stock would be recognised in this approach. Additionally, particular features of the property – for example, when it is located within the employer’s premises – might also be reflected in the market value.

Other circumstances

4.30 This part of the chapter considers the appropriate tax treatment of accommodation payments and employer provided accommodation in certain other circumstances.

Home workers

4.31 In addition to the limited number of employees who must live in a particular property because of the needs of the job, more commonly, employees may work from home either from personal choice or because their employer wants them to do so. For example, an office-based employee may choose to work from home to avoid a long daily commute, or an employer may prefer to reimburse an employee’s home office costs rather than pay for additional commercial office space.

4.32 As a matter of principle, if someone uses part of their home in their work, it is appropriate to adjust the taxable value of any employee expenditure payment to reflect any additional work costs. The extent of that adjustment should reflect the particular circumstances. When a separately identifiable part of the home is used wholly for work purposes, it may be appropriate to base the apportionment on the area used. When there is mixed use, some other basis for apportionment may be appropriate. For example, by treating an accommodation employee expenditure payment as tax-free to the extent that it meets additional heat and lighting costs.

4.33 Generally, our consultations to date suggest that this approach does not raise significant issues. Apportionment issues are considered more generally in the next chapter.

More than one permanent workplace

4.34 Work requirements may mean the employee has more than one permanent regular workplace for the same employer. For example, when an employee is required to work permanently in Auckland for two days a week and in New Plymouth for three days a week with substantive duties in each city requiring overnight accommodation in both locations. This is distinct from the situation of an employee with a permanent workplace some distance from their home who chooses not to relocate but is able to work locally from personal preference or an employee with two separate jobs.

4.35 In the ordinary course of events any accommodation payment made to meet accommodation costs in either location would be taxable, even if rules were introduced to exempt accommodation at temporary workplaces – neither workplace is temporary and any upper time limit would be exceeded. However, in certain circumstances, it might be appropriate not to tax the accommodation costs in one location, recognising that the employee has to incur additional costs because of the requirements of the job to work in more than one location.

4.36 Under this scenario, it could be a requirement of the job that the employee had to work for a reasonable period of time each working week at the alternative work location and not just a matter of personal preference for the employee. For example, an employee may be responsible for day-to-day management of factories in two geographically separate locations.

4.37 If we were to consider this further, there would need to be a mechanism for identifying the non-taxable work location. We have identified the following options:

  • Employee nomination – Under this approach an employee who satisfies multiple permanent workplace criteria would nominate a particular workplace as their main workplace. An accommodation payment made in relation to accommodation at the other workplace could then be paid tax-free. The advantage of this approach is that once any qualifying criteria had been satisfied, no further judgements would need to be made and the employee would make a nomination to the employer.
  • Main place of work – This approach would require a factual assessment to be made about which workplace is the principal place of work – for example, the workplace where the employee works for most of his or her time. That would be treated as the main workplace for tax purposes and an accommodation payment made to meet costs at the other workplace could be made tax-free. This would require a subjective judgement to be made which might change as circumstances change.
  • Quality of accommodation – The first two options consider the position from the perspective of the workplace. They take no account of the nature of the accommodation – that is, whether it constitutes lodging or living accommodation. The particular concern is about employees who are required to live in temporary accommodation because of the demands of the job – normally for part of the week. Therefore, a further option is to exempt only accommodation payments made to meet short-term accommodation costs, such as hotel rooms or short-term lodgings – that is, accommodation without the means for independent living (in other words without cooking facilities). This option has the advantage of focusing on temporary arrangements that are not otherwise recognised by the more general rules discussed previously.

4.38 If rules were to be introduced to cater for the situation when an employee has more than one permanent and regular workplace, our preference would be for the second option under which the tax treatment of any employee expenditure payment is determined by the main place of work. Employee expenditure payments to meet accommodation costs at the secondary workplace could then be paid tax-free.

4.39 While this does not provide a “bright line” test, and requires a judgement to be made about the main place of work, this approach avoids the fiscal risk that might arise if the tax treatment was simply determined by reference to employee choice, rather than on the basis of the particular facts.

Overseas temporary transfers

4.40 In some cases, the market value of the property the employer requires the employee to occupy because of the needs of the job is disproportionately expensive compared with the rest of the employee’s remuneration package. The focus is on employer-provided accommodation, but there may also be issues when an employee expenditure payment is paid.

4.41 We have in mind the scenario of an employee who is transferred to an overseas work location – for example, an employee who must live in the middle of Tokyo, where accommodation costs are particularly expensive compared with New Zealand. This is not an issue when the employee is no longer tax-resident in New Zealand. However, when the employee remains a New Zealand tax-resident, there can be some very high tax charges and social assistance entitlements or obligations implications.

4.42 Options for addressing this concern are similar to those identified earlier when an employee is required to occupy particular accommodation because of the requirements of the job. Our initial view is that, for the most part, market value will be appropriate as the employer should build any tax effect into the overall remuneration package.

4.43 However, it might be appropriate to cap the measure of the private value by reference to a percentage of salary or a standard property in New Zealand as outlined in the options discussed earlier. For example, one possible approach would be for the taxable value to be based upon the average market rental value of a similar property with the same number of bedrooms in Wellington or Auckland.

Relationship with other tax rules

Fringe benefit rules

4.44 As previously discussed, when an employer makes a taxable accommodation employee expenditure payment, the taxable value should normally be the amount of the payment. When the employer provides the accommodation, the taxable amount should normally be based on the market value, or rental value. These alternative approaches produce broadly the same tax outcome since the employee expenditure payment will normally be to meet the employee’s rent (or be a contribution to the rent).

4.45 In these circumstances, the market value is taxed as employment income rather than as a fringe benefit. One of the reasons for this particular treatment is historical, in that employer-provided accommodation was subject to income tax before FBT was introduced.

4.46 Employer-provided accommodation delivers a very significant benefit to an employee because it replaces a very significant part of his or her personal household costs. By treating the value of such a benefit as employment income, this ensures that it is taken into account in establishing the employee’s entitlement to tax credits such as Working for Families payments, as well as liabilities such as Child Support. Changing the rules so the benefit is subject to FBT would be more consistent with the treatment of major non-cash benefits and would tax the non-cash accommodation benefit at a more appropriate rate.[20} However, it would significantly distort the social assistance outcomes as fringe benefits are generally not included in income calculations for social assistance purposes.

4.47 It would, of course, be possible to change the law so employer-provided accommodation taxed as a fringe benefit is taken into account in determining social assistance entitlements and obligations. More general work is underway on the extent to which salary trade-offs should be included in social assistance calculations. In principle this would be a better, more consistent approach. However, this would create some additional compliance costs and increase the risk that the amounts are not included in practice.

4.48 On this basis, we prefer at this stage to continue to treat the taxable value of employer-provided accommodation as employment income for tax purposes.

Relationship with relocation rules

4.49 There is a legislative exemption for relocation payments[21} to allow an employer to reimburse tax-free certain expenses incurred by the employee when moving their home as a result of a job move, or taking up new employment.

4.50 The relocation exemption allows expenses incurred up to the end of the tax year following that in which the relocation occurs to be reimbursed tax-free. The expenses that can be paid tax-free are provided in a Commissioner’s determination, Determination DET 09/04. DET 09/04 provides for accommodation, or the value of employer-provided accommodation once the employee has arrived in the new location, for up to three months after arrival, to be paid tax-free.

4.51 This exemption stands independently of any other tax rules.

4.52 We have considered whether we should link the accommodation time limit for the relocation exemption to any new rules affecting meal and accommodation allowances. However, we do not think this will be necessary if the 12-month time limit for paying a tax free accommodation allowance when temporarily working away from the employee’s normal workplace were clearly expressed as an upper limit.

4.53 Our preference is that both time limits should be linked to the employee’s initial arrival at the new workplace. Provided this is the same, the relocation exemption time limit would expire well within the temporary workplace time limit. When an employee takes advantage of the relocation exemption, this should also be an indication that he or she views the new workplace as permanent and the suggested longer time limit for temporary work travel would not apply.


14 C of IR v Haenga (1985) 7 NZTC 5,199, see paragraph 3.6 of Chapter 3.

15 Case G57 (1985) 7 NZTC 1,251.

16 Although this case concerned whether an employee could claim a tax deduction, something an employee can no longer do, the principles are still relevant to considerations of the tax treatment of employee expenditure payments linked to accommodation costs.

17 LAFHA is an allowance paid by an employer to an employee to compensate for additional expenses incurred and any disadvantages suffered because the employee is required to live away from their usual place of residence in order to perform their employment duties. The part of LAFHA that is taxed is usually minimal as the taxable element is reduced by any reasonable amounts paid in compensation for accommodation and increased expenditure on food.


19 Section CW 17B.

20 Currently, a $1,000 non-cash accommodation benefit is taxed at a maximum of $330. To pay $1,000 in rent, the employee would need to earn $1,500, i.e. pay $500 in tax, not $330.

21 Section CW 17B.