Q: Our company is currently providing a union fee subsidy and below is what was stipulated in a previous collective agreement:
“In Recognition of the union, the employer will subsidies the union fee by $2,00 per week.
This Subsidy is not listed under a current agreement anymore but the company agreed to keep paying employees the subsidy even though it is not part of the CA.
Some might argue this Subsidy is now a partial ‘reimbursement’ of union fees and under IRD guidelines, it was previously classified as non-taxable. It’s essentially an expense that they have incurred for being part of the union whilst doing their job. The Business often refer to it as a subsidy however it is actually reimbursing an employee for an amount that they pay out of their pocket.
Can I please check if this subsidy should be considered taxable?
Do we need to include it in OWP calculation as it is a regular payment?
A: Do you have a link to the IRD guidelines you refer to?
Q: Please find the link attached
Reimbursing allowances (ird.govt.nz)
The Union Allowance is currently set up as non-taxable and I feel like there would be a really good reason for that. I don’t think it would have simply been missed but based on previous advise the Union Allowance should be taxable. I just want to check if there are multiple angles to the tax interpretation applicable.
A: I do not see any weight in the IRD reference to back up that this allowance is a reimbursing allowance.
You don’t need to be a union member to be an employee, so it cannot be considered reimbursement. The basic definition of reimbursing is the employee incurring a cost while working for their employer. For example, this is about an employee out on the road doing work and having to pay for an item related to the work they need to do and then making an expense claim with a receipt for the work-related expense — Paying union fees for an employee is not this and should be seen as a taxable benefit. It costs the employee nothing to be a union member and the services the union provides (they are receiving a benefit). So, with the employer paying for this, it is a taxable benefit to the employee, so PAYE is applicable.
The employer could decide to pay the tax on this allowance as an agreed term.
Issues:
- If you have been doing this for years, then there is tax to pay (by the employer, not the employee) – back 7 years
- This is part of the taxable gross for leave, so will impact leave – back 6 years
You may need to get a legal opinion on that, but from what information you have provided, this is NZPPA’s view.