Last week the IRD released some “Questions we’ve been asked” for public consultation.

These clarified the position in relation to two types of farming transactions being: The tax treatment of allowances and benefits paid to farm workers and whether sharemilkers and contractors can claim a 20% deduction for farmhouse expenses. 

In relation to the first item, as expected an allowance reimbursing an employee for expenses connected to their employment is tax free. This does not extend to items of a private or capital nature. If the allowance is a benefit allowance then this is taxable subject to PAYE i.e. an allowance paid for working in a dangerous environment or with dangerous goods. Both allowances should generally be tax deductible to the employer. 

If an employer provides farm workers with non-cash benefits, then this could be subject to FBT. This again should be deductible to the employer. 

The statement also confirms that sharemilkers and contract milkers can claim a 20% deduction for farmhouse expenses without needing to perform any calculations relating to actual business use when certain conditions are met. These include that they carry on a business as sole traders or partnership separate from the farm owners, the scale of business justifies a need to have a home office in the home and the farmhouse is used in a similar manner to houses used as a home office on what is defined as a type 1 farm (where the cost/value of the farmhouse is less than 20% of the farm). 

There are no new surprises here but it may be worth reading the QBs as they provide further analysis and certain definitions that need to be met. The link is: IRD Interpretation on Farming Costs

You have until the 11 May 2018 to make your comments and submissions.