A reminder from Inland Revenue about salary sacrifice arrangements
IRD has reminded employers and advisers to tread carefully with salary sacrifice arrangements for bicycles and other low-powered vehicles.
If an arrangement is not legally valid, employers could face PAYE and FBT liabilities, and GST implications may also apply. Don't assume a salary sacrifice arrangement is tax-free, make sure the PAYE, FBT and GST consequences have been properly considered.
Large scale digital fraud ends with prison sentence
An Auckland man has been jailed for using stolen identities, compromised myIR accounts and forged documents in an attempt to obtain more than $2 million from Inland Revenue through tax and COVID-support fraud. Despite submitting 121 fraudulent claims and returns, Inland Revenue's controls limited the actual loss to around $251,000. A useful reminder that while technology may be making fraud more sophisticated, it is also making it easier to detect.
GST on financial services supplied in relation to retirement schemes
IRD has issued a reconsultation about the GST treatment of services supplied by a retirement scheme manager to the scheme, and services supplied by third-party outsourced provider to the scheme manager.
The draft concludes the “management of a retirement scheme” involves the control, direction, planning, and decision-making functions relating to the scheme. This means the entity formally appointed as the scheme manager will generally be making exempt supplies of financial services. However, in some cases outsourced providers may also be supplying the management of a retirement scheme if they effectively undertake those managerial functions on behalf of the manager. Whether this applies depends on the specific contractual and operational arrangements.
IRD notes outsourced services can either be merely administrative or involve financial service functions. Administrative services such as fund accounting, registry services and unit pricing will generally remain taxable for GST purposes. Investment management services may be either exempt financial services or taxable advisory services depending on the scope of authority delegated and how the services are performed. This reconsultation will remain open for submissions until 13 August 2026.
Income tax cash incentives for banking customers
An IRD exposure draft considers the income tax treatment of cash incentive payments (CIPs), often called cashbacks, paid by banks to borrowers who are cash basis persons under New Zealand’s financial arrangement rules. The draft focuses primarily on common situations where banks offer cash incentives to attract or retain mortgage customers and explains when those payments do and do not create tax obligations.
Where a borrower uses a loan for a private purpose, such as purchasing their owner-occupied home, a CIP is not taxable income and does not result in any income tax obligations. Where the loan is used for an income-earning purpose, such as purchasing a rental property, the CIP must be taken into account under the financial arrangement rules.
A cash basis borrower is not required to return the cashback as income when it is received. Instead, the amount is taken into account through the base price adjustment (BPA) calculation when the loan comes to an end. The exposure draft is currently open for consultation with submissions due by 3 September 2026.
Technical decision summaries:
Employee allowances: Tax exemption and PAYE treatment
Inland Revenue’s private ruling on the tax and PAYE treatment of various employee allowances, including meal, tool, transport, laundry and telephone allowances confirms they are exempt from tax only where they meet the specific requirements of the Income Tax Act 2007.
Meal allowances are exempt only when linked to qualifying overtime and reasonable meal costs, while tool allowances are exempt only to the extent they reimburse deductible work-related costs such as depreciation, insurance and maintenance of employee-owned tools. Further transport allowances are exempt only when they reimburse additional employment-related transport costs arising from factors such as shift timing and a lack of adequate public transport; ordinary home-to-work travel remains private and taxable.
Any allowance that does not qualify for an exemption is treated as taxable employment income and is subject to PAYE withholding obligations.
Disposal of property and shortfall penalties
A dispute with Tax Counsel Office (TCO) considered whether the proceeds of a property sale were taxable because the land was acquired with a purpose or intention of disposal. A property development company purchased a property around 20 years ago and later subdivided it into five lots, and sold one lot three years later.
The taxpayer argued the section was intended to become the director’s family home. However, the TCO noted the company owned the land and was a separate legal entity from the director. TCO concluded that the taxpayer had not shown that the land was acquired without a purpose or intention of disposal and imposed a shortfall penalty for taking an unacceptable tax position because the taxpayer's position was not reasonably sustainable.
Excepted financial arrangements
Inland Revenue has released a technical decision summary about whether an agreement for the supply of products qualified as a "short-term agreement for sale and purchase" and therefore an excepted financial arrangement. The private ruling concluded the arrangement met the requirements to be treated as an excepted financial arrangement, meaning the financial arrangement rules did not apply.
The case is a useful reminder that not all arrangements involving deferred payment terms are automatically subject to the financial arrangement rules. Where an agreement qualifies as a short-term agreement for sale and purchase, it may fall within the exception
