Out of The Office

ACC Levies on Rental Income

An ACC representative has recently visited my office recently.
He mentioned that if a rental property was managed by a third party then the rental income can be classed as passive. If the owners were managing the property themselves the rental income should be classed as active for ACC purposes.
Is this correct?


If an individual taxpayer derives rental income from a property that is managed by a third party (i.e. the landlord has no involvement with the management and operation of the rental property), the rental income derived from the property would be passive and therefore not liable for ACC levies.
The key point in determining whether an individual taxpayer is liable for ACC levies is the requirement that the income be derived from personal exertion. In the case of a residential rental, arguably the rental income will continue if the taxpayer suffers an incapacity and is unable to work, even if the taxpayer plays an active role in managing the property. On this basis (in our opinion), rental income would not be liable for ACC.
On the contrary, if the individual taxpayer is in the business of residential rentals (i.e. has a rental portfolio that requires personal exertion by the taxpayer to administer), the rental income derived by the taxpayer may be liable for ACC.

Motor Vehicle Allowance

We have a client who is going to pay an employee a car allowance, instead of providing them with a vehicle. How is this treated for PAYE/GST/FBT purposes?


Travel allowances are tax free to the employee, i.e. there is no PAYE payable. These reimbursements can be based on either:
actual costs incurred by the employee;
a reasonable estimate of the costs incurred by the employee;
published mileage rates (based on number of business kms travelled) such as AA rates;
IRD published mileage rates (< 5,000 km).
Note that travel allowances paid in excess of the actual business expenditure incurred will be employment income to the employee and subject to PAYE.
When the allowance is for a reimbursement of actual expenses incurred, the employer can claim GST. Note that GST invoices should be kept for amounts over $50.00.
As the vehicle is owned privately, there are no issues with fringe benefit tax.

Give me a call on (04) 563 6965 or email me: dennis@taxman.co.nz
Keep an eye out for October’s article!

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