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Inland Revenue issues warning on salary packaging voucher schemes

On 21 February 2013, Inland Revenue issued Revenue Alert RA 13/01, which warns against an arrangement which is being entered into by employers whereby employees select that a part of their salary or wages is substituted for vouchers (e.g. supermarket or petrol vouchers).  

What is the arrangement?

Under this arrangement, the employee’s salary is treated as being reduced by the amount of the salary or wages sacrificed for the vouchers. The vouchers may be subject to FBT but because many of the participant employers are charities, these employers can treat the provision of vouchers as exempt for FBT purposes, provided they are not short term charge facilities. There is also a view with this scheme that GST output tax does not need to be paid when the vouchers are given to the employees. As well as paying less tax, employees will also have reduced “income” and so will pay less child support, decrease their student loan repayment obligations and KiwiSaver contributions as well as claim a larger Working for Family Tax Credit. 

It is Inland Revenue’s view that this is not a genuine salary sacrifice arrangement and that employees have not reduced their salary but merely redirected part of the cash remuneration towards fuel or supermarket vouchers.  The Inland Revenue also consider that the supply of the vouchers is a supply which is subject to GST and that output tax ought to be returned by the employer on that supply.

Inland Revenue advises that it is currently investigating a number of taxpayers that have entered into this scheme.  If you have any concerns about your tax position in this regard, please contact your usual Deloitte tax advisor.

Tax Alert March 2013 contents

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