Mind your taxes, when thinking about vaxes

Tax Alert - February 2022

By Susan Wynne

Just as “two shots for summer” was an effective incentive to get Kiwi’s vaccinated before the Christmas break, businesses across New Zealand have been offering employees incentives to get their vaccinations, most commonly in the form of one-off cash payments or gift vouchers. It’s a win-win, as employees receive the incentive and can return to work in a safe environment with their peers while businesses can continue to engage with customers and the wider community with lower risk and higher confidence.

Although the “carrot” approach has proven one way of getting vaccination rates up, it is important not to overlook the tax implications these types of incentives can have.

Cash bonuses and PAYE

A cash bonus paid to an employee for getting vaccinated is linked to their employment and as such is taxable employment income. Employers should deduct PAYE from bonuses paid to employees on the basis that the lump sum payment is an extra pay. An extra pay is a payment made in connection with employment that is not regularly included in salary or wages and is not overtime pay.

Cash incentive payments may also be subject to other withholding such as KiwiSaver deductions or student loan repayments.

Employers should manage communications with staff so they understand that the net cash they receive will be a reduced by tax deductions unless an employer chooses to gross up a cash bonus for tax. Employees might not appreciate getting on board with a vaccination program only to feel short-changed later due to tax deductions.

If you have a situation where you have paid cash incentives to employees and not withheld PAYE, the best thing to do is to make a voluntary disclosure to Inland Revenue. Contact your usual Deloitte adviser for assistance.

Non-cash incentives and FBT

Where a non-cash benefit such as a supermarket voucher or Prezzy card is provided as an incentive to employees for getting vaccinated these may be subject to fringe benefit tax (FBT). Gift vouchers are not subject to FBT if they fall under the de-minimis exemption that applies to unclassified fringe benefits, where:

  • the value of unclassified benefits each employee receives does not exceed $300 per quarter for a quarterly FBT filer or $1,200 per annum for an annual FBT filer; and
  • the total taxable value of all unclassified benefits provided by the employer, or an associated person, to all employees does not exceed $22,500 per annum or in the last four quarters.

If either of these thresholds are exceeded, all unclassified benefits, including any vouchers provided for vaccinations are subject to FBT.

The FBT exemption for benefits provided in respect of an employee’s health or safety will not apply to vouchers awarded as a vaccination incentive.

For more information on FBT see our March 2021 Tax Alert article here which has further detail on current FBT rates and examples of how the recent FBT changes could impact you.

WFH allowances

With the move to Red under the Covid-19 Protection Framework, it is also timely to note that amounts paid to reimburse staff for costs incurred while working from home (WFH) are considered income of the employee. However, in some situations part of the allowance could be exempt from tax based on Inland Revenue’s Determination EE003: Payments provided to employees that work from home; Employee use of telecommunications tools and usage plans in their employment.

For more detail refer to our September 2021 Tax Alert article here.

Don’t be discouraged

Using incentives is a great way to keep staff motivated and healthy in the fast-changing environment we all currently find ourselves in. If you have been offering or are considering offering cash or non-cash incentives to employees but are unsure about your specific tax obligations or have any questions, contact your usual Deloitte adviser.

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