Tax implications of working for accommodation
Providing a person with accommodation in exchange for work can have income tax and GST implications, for both the provider and the worker.
Common situations include seasonal and casual labour in the farming, hospitality and tourism industries. In these industries, backpackers, travellers from overseas, university students, seasonal workers and other casual workers are often taken on to harvest crops, pick fruit, garden, paint, clean, cook, make beds, work in bars and wait at tables. As part of the arrangement, they get a place to sleep and may also get food to eat instead of or as well as payment for the work.
Tax issues are not confined to these industries or situations. Potentially, there will be tax to pay whenever a worker does work for someone else who gives them accommodation as "part of the deal". This is whether the worker also gets money for doing the work or not. It could also be despite the worker being called a "volunteer".
The following is a summary of how the tax laws apply to the situation of working for accommodation:
Most income tax issues arise where work is done as an employee.The test for whether someone is an employee is discussed below but if a worker is an employee, the "market rental value" of the accommodation must be treated as salary or wages. It will be income to the worker and the employer will have to comply with the PAYE rules. This means the employer must include details on their current employer schedule or employment information and pay the worker's PAYE.
Market rental value
"Market rental value" is what is likely to be paid for similar accommodation in a comparable location by someone who is not related to the employer or employed by them. In a backpacker hostel, for example, it is likely to be the room rate for the room that the employee occupies. In a farming situation, there may be different factors to consider before arriving at a figure, but a judgement must still be made using relevant information and on a reasonable basis.
The employer is responsible for coming up with a reasonable estimate of the market rental value of the accommodation. You can find guidance on this in the Commissioner's Statement CS 16/02 Determining "Market Rental Value" of Employer-Provided Accommodation.
Who is an employee?
Whether a worker is an employee or not depends on the particular circumstances, and especially the terms of the agreement or arrangement to do the work. Various tests developed by the Courts must be applied.
It is possible that when all the circumstances of engaging the worker to do the work are considered, and the tests applied, it will turn out that the worker is an independent contractor rather than an employee or, in rare cases, a volunteer.
However, situations where it is more likely that a worker is an employee include where:
- the worker is subject to expectations, restrictions and controls as to the hours they work, tasks they perform and how they perform them
- the worker is required to do the work as a condition of being provided accommodation
- the worker gets substantially less cash than might be expected for the work required but does get "free" accommodation instead
- the worker is provided with the accommodation in consideration of or in return for providing work that is of benefit to the business
- it is the sort of work that comparable businesses would engage employees to do.
These are not the only factors that might make a difference either way. It could make a difference if, for example, the worker has to provide the equipment needed to do the work or there is an agreement saying that someone is not intended to be an employee. These factors should be taken into account but, on their own, are unlikely to outweigh other factors.
It is especially important to recognise that a worker does not have to be getting paid cash to be an employee.
You can find more information on the tests to apply in:
- our Interpretation guideline IG 16/01 Determining employment status for tax purposes (employee or independent contractor?), and
- our guide Self-employed or an employee (IR336).
Deducting expenses for tax
A business owner may be able to deduct expenses incurred in providing the accommodation and other benefits to a worker, whether the worker is an employee or not. This is subject to the normal deductibility rules, including limitations on capital and private expenditure. So, the cost of groceries, heating, and bedlinen, for example, should give rise to a deduction. The expense for some items should be apportioned if they are not only incurred for providing accommodation to workers. PAYE paid to Inland Revenue will also be deductible.
Goods and services tax
A business owner will be liable for GST on the supply of accommodation to workers, whether employees or not, if the accommodation is in a commercial dwelling such as a hotel, motel, farm stay, inn, hostel or camping ground. For example, this means that there could be GST payable on accommodation provided to workers in backpacker hostels.
The supply to the worker will be of "domestic goods and services" and the amount of GST payable will be based on the open market value of the services supplied by the worker. In the context of a backpacker hostel, it is likely to be an amount equal to the minimum hourly wage for the hours worked and how long the worker stays there - stays of more than 4 weeks attract less GST.
Providing accommodation in a dwelling is an exempt supply but a commercial dwelling is not a "dwelling". The business owner will therefore be able to deduct input tax on goods and services acquired for a commercial dwelling but not for a dwelling.
For the worker, it will be important to establish whether a worker is an employee or an independent contractor. An employee will not be liable for GST on the services they provide to get accommodation.
If they are not an employee, they will need to register for GST (and charge GST on their services) where the consideration they receive in a year for their services (including the value of their accommodation from all the people they work for) is more than $60,000.
Other issues for employers
Fringe benefit tax
Employers should note that non-cash benefits apart from accommodation can also mean they have fringe benefit tax obligations. The use of a motor vehicle and subsidised transport are common examples, but other benefits could also be subject to FBT.
Work permits and other legal obligations
Working for accommodation arrangements will often require issues other than tax to be considered. These include the requirement for some workers to have work permits before they can work in New Zealand, and compliance by employers with their obligations under employment law. For more information, visit the New Zealand Immigration and Ministry of Business, Innovation and Employment websites.
Tax code declaration and IRD numbers
Each employee must complete a Tax code declaration (IR330) and apply for an IRD number. Employers must also ensure that they meet their obligations under other legislation that requires them to make payments to Inland Revenue such as ACC, KiwiSaver, Child Support and Student Loans.
If you have any concerns about compliance with the tax obligations discussed here, you should discuss the matter with a tax professional or Inland Revenue.