On 24 October 2007, the government announced that it would introduce changes to ensure that employer payments for employee relocation expenses are not taxable. This included payments made over the last four years, as well as to future payments.

In October 2009, legislative changes were enacted to make relocation costs specifically exempt from tax (both fringe benefit tax (FBT) and PAYE). The exemption applies to payments of relocation costs for new or existing employees working in a new location, where the employee’s home is not within reasonable travelling distance of the new workplace. In general, a daily travelling time of more than two hours in total would not be regarded as a reasonable travelling distance.

The amount paid must be no more than the actual incurred by, or on behalf of, the employee on an expense that Inland Revenue lists as an eligible relocation expense. That determination has now been finalised, and is available on Inland Revenue’s website. It provides a very comprehensive list of relocation expenditure, including temporary accommodation for up to three months after arrival.

A significant number of public entities have paid tax on relocation costs in the past. Some stopped paying tax on these payments following the government’s initial announcement. Others chose to continue paying tax on relocation costs until the change became law.

As the amendment was backdated to 2002, employers are now entitled to claim a refund for tax paid in previous periods. This includes PAYE, FBT, and, in some cases, GST on fringe benefits. To claim a refund, you will need to advise Inland Revenue the amount of tax paid in each tax period, as reassessments will need to be made.

Page last updated: 9 December 2010