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Income Tax Act 2007

Income - Exempt income

CW 17: Expenditure on account, and reimbursement, of employees

You could also call this:

“Money your employer spends on your work expenses is tax-free”

When your employer spends money on you or reimburses you for work-related expenses, this money is exempt from income tax. This applies to expenses you would be able to claim as a deduction if you had paid for them yourself, ignoring the employment limitation.

For the money to be exempt, the expense must be necessary for you to do your job, and you must be earning income from doing that job.

If your employer gives money to a large group of employees to cover work expenses, and it’s hard to measure how much each person benefits privately, the Commissioner of Inland Revenue can decide how much tax (if any) needs to be paid on this money.

Your employer can estimate how much you or a group of employees might spend on work expenses over a certain period. This estimate is treated as if it were the actual amount spent during that time.

In this section, ‘expenditure’ includes depreciation loss, which is when something loses value over time.

This section doesn’t apply to some specific types of employment expenses, which are covered in other sections of the law.

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View the original legislation for this page at https://legislation.govt.nz/act/public/1986/0120/latest/link.aspx?id=DLM1513183.

Topics:
Money and consumer rights > Taxes
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CW 16F: Accommodation expenditure: multiple workplaces, or

“Rules for tax-free accommodation when you work at multiple locations”

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CW 17B: Relocation payments, or

“Tax-free payments for work-related moving expenses”

Part C Income
Exempt income

CW 17Expenditure on account, and reimbursement, of employees

  1. Expenditure on account of an employee, being a payment to which section CE 5 (Meaning of expenditure on account of an employee) applies, that is incurred by an employer in connection with the employee’s employment or service is exempt income of the employee to the extent to which the expenditure is expenditure for which the employee would be allowed a deduction if they incurred the expenditure and if the employment limitation did not exist.

  2. An amount that an employer pays to an employee in connection with the employee’s employment or service is exempt income of the employee to the extent to which it reimburses the employee for expenditure for which the employee would be allowed a deduction if the employment limitation did not exist.

  3. For the purposes of subsections (1) and (2), expenditure is treated as incurred, or an amount paid, in connection with an employee's employment or service only if—

  4. the expenditure is incurred or the amount is paid because the employee is performing an obligation required by their employment or service; and
    1. the employee derives employment income through the performance of the obligation; and
      1. the expenditure is necessary in the performance of the obligation.

        1. Subsection (2D) applies for the purposes of subsections (2) and (3) to an amount that an employer pays to or on behalf of an employee in connection with their employment or service when—

        2. the payment—
          1. is made to, or on behalf of, a wide group or class of employees; and
            1. is provided mainly to reimburse an expense incurred by an employee in deriving their employment income; and
            2. the amount paid is not an amount incurred by the employer when, under the terms of their employment, the employee would be entitled to a greater amount of employment income, should the employee choose, or have chosen, not to receive the benefit of the amount; and
              1. the Commissioner considers that the average private or capital benefit that the employee as a member of the group or class is likely to receive from the payment is hard to measure.

                1. The Commissioner may make a determination under section 91AAT of the Tax Administration Act 1994 as to whether, or the extent to which, tax must be paid on some or all of the amount.

                2. For the purposes of subsection (2),—

                3. the employer may make, for a relevant period, a reasonable estimate of the amount of expenditure likely to be incurred by the employee or a group of employees for which reimbursement is payable; and
                  1. the amount estimated is treated as if it were the amount incurred during the period to which the estimate relates.

                    1. In this section, expenditure includes an amount of depreciation loss.

                    2. This section does not apply to an amount referred to in section CW 16B to CW 16F, CW 17B, CW 17C, CW 17CB, CW 17CC, or CW 18 (which relate to certain amounts of employment expenditure).

                    Compare
                    Notes
                    • Section CW 17(1): amended (with effect on 1 April 2008), on (applying for the 2008–09 and later income years), by section 16(1) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).
                    • Section CW 17(2B) heading: inserted, on , by section 25(1) of the Taxation (Annual Rates, Employee Allowances, and Remedial Matters) Act 2014 (2014 No 39).
                    • Section CW 17(2B): inserted, on , by section 25(1) of the Taxation (Annual Rates, Employee Allowances, and Remedial Matters) Act 2014 (2014 No 39).
                    • Section CW 17(2C) heading: inserted, on , by section 25(1) of the Taxation (Annual Rates, Employee Allowances, and Remedial Matters) Act 2014 (2014 No 39).
                    • Section CW 17(2C): inserted, on , by section 25(1) of the Taxation (Annual Rates, Employee Allowances, and Remedial Matters) Act 2014 (2014 No 39).
                    • Section CW 17(2D) heading: inserted, on , by section 25(1) of the Taxation (Annual Rates, Employee Allowances, and Remedial Matters) Act 2014 (2014 No 39).
                    • Section CW 17(2D): inserted, on , by section 25(1) of the Taxation (Annual Rates, Employee Allowances, and Remedial Matters) Act 2014 (2014 No 39).
                    • Section CW 17(4) heading: added (with effect on 1 April 2008), on , by section 44(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
                    • Section CW 17(4): added (with effect on 1 April 2008), on , by section 44(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
                    • Section CW 17(5) heading: replaced, on , by section 25(2)(a) of the Taxation (Annual Rates, Employee Allowances, and Remedial Matters) Act 2014 (2014 No 39).
                    • Section CW 17(5): added (with effect on 1 April 2008), on , by section 44(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
                    • Section CW 17(5): amended, on , by section 25(2)(b) of the Taxation (Annual Rates, Employee Allowances, and Remedial Matters) Act 2014 (2014 No 39).
                    • Section CW 17 list of defined terms Commissioner: inserted, on , by section 25(3) of the Taxation (Annual Rates, Employee Allowances, and Remedial Matters) Act 2014 (2014 No 39).
                    • Section CW 17 list of defined terms depreciation loss: inserted (with effect on 1 April 2008), on , by section 44(2) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
                    • Section CW 17 list of defined terms employment: inserted, on , by section 25(3) of the Taxation (Annual Rates, Employee Allowances, and Remedial Matters) Act 2014 (2014 No 39).
                    • Section CW 17 list of defined terms employment income: inserted, on , by section 25(3) of the Taxation (Annual Rates, Employee Allowances, and Remedial Matters) Act 2014 (2014 No 39).
                    • Section CW 17 list of defined terms tax: inserted, on , by section 25(3) of the Taxation (Annual Rates, Employee Allowances, and Remedial Matters) Act 2014 (2014 No 39).