Farm worker accommodation & PAYE
Where farm employees occupy a farm house rent free, the market value of the deemed rental is part of the employee’s remuneration and subject to PAYE. This creates a residential rental situation, with deductibility of the running costs (insurance, repairs, etc) permitted. The rental income is GST exempt and the flip-side is all costs and capital expenditure are GST exempt also.
The rent should be equivalent to market value so we suggest it’s a good time to reconsider the values you are using as we have seen a lift in rentals over the past few years.
There also seems to be some confusion as to how this rental is incorporated into the PAYE calculations so we will demonstrate an example:
John works on a farm as head shepherd and receives a salary of $45,000 as well as a free house. The house is 30 minutes from town, of average condition and 3 bedrooms. Equivalent houses in the district are rented for $200 per week. He has nominated the tax code M on his IR330 Tax Code declaration form. He is paid weekly, receives a non-taxable allowance of $20 per week, and is a member of KiwiSaver at a deduction rate of 3%.
Salary divided by 52 weeks $865.38
Market value of free rent $200.00
Gross Weekly Income $1,065.38
Less:
PAYE ($200.18)
KiwiSaver Employee deductions ($31.96)
Plus:
Non Taxable Allowance $20.00
Less:
Rent ($200.00)
Net Weekly Payment $653.24
The IRD have a PAYE calculator but you will need to make a manual adjustment for the deemed market value of rent and any non-taxable allowances. You can find it here.
If you pay your salaries by automatic payment, it is a good time to review your calculation as rates can change annually (especially ACC) and your automatic payment may need to be updated.
