20 Apr 2012

Dunne's proposal to tax three benefits draws criticism

7:15 am on 20 April 2012

Revenue Minister Peter Dunne's plan to make three tax-free benefits subject to tax is drawing some criticism.

Mr Dunne is proposing that company car parks, onsite childcare and vouchers given to charity staff to buy groceries and fuel should be taxable, bringing in an extra $45 million in revenue each year.

Critics warn, however, that it could create a legal and administrative minefield for businesses, change how salary packages are shaped, and deal the charitable sector a body blow.

A consultation document on the proposal suggests either taxing the benefits through employee's PAYE or through the fringe benefits tax paid by employers.

KPMG tax partner Murray Sarelius says it might prove difficult to put a cash value on benefits such as car parks if there isn't a separate lease of the park.

He says he has recently seen a move by employers to provide benefits in kind to their staff as part of a drive to be a good employer.

"Basically," he says, "this drives everyone back to cash packages because it's easier."

Working for Families tax credits affected

Critics also say the proposal could affect employees' student loan repayments and their eligibility for Working for Families tax credits if their taxable income climbs higher.

A spokesperson for the minister estimates that about 5000 families who currently get Working for Families tax credits would be affected by the change.

Strategic Pay - a remuneration specialist - says charities will be dealt a body blow if the proposal to tax grocery and fuel vouchers is implemented.

It says charities may find it harder to recruit senior executives since benefits in remuneration packages are one of the few ways they can bridge the gap between what they are able to pay for staff and the going rate on the open market - a gap that can be as wide as 20%.

Submissions on the proposal close on 13 May and the Government aims to introduce the changes by April 2014.