Tax Implications on Free Accommodation

A business owner (like a farmer, restaurant owner, or someone in the accommodation business) who provides accommodation to workers in return for them carrying out tasks should be aware that there could be income tax, GST and other implications of providing that accommodation.

Application:

For example, the “market rental value” value of accommodation may have to be treated as salary or wages for the worker and, for owners of commercial dwellings like hotels, hostels or camping grounds, there will be GST on the supply of the accommodation.

Issue:

It is especially important for businesses in industries like farming, hospitality and tourism who engage students, backpackers and other casual workers for seasonal or short-term arrangements to be aware of this issue.

Tax issues are not confined to these industries or situations. Potentially, there will be tax to pay whenever a worker does work for someone else who gives them accommodation as "part of the deal". This is whether the worker also gets money for doing the work or not. It could also be despite the worker being called a "volunteer".

A business owner may be able to deduct expenses incurred in providing the accommodation and other benefits to a worker, whether the worker is an employee or not. This is subject to the normal deductibility rules, including limitations on capital and private expenditure. So, the cost of groceries, heating, and bedlinen, for example, should give rise to a deduction. The expense for some items should be apportioned if they are not only incurred for providing accommodation to workers. PAYE paid to Inland Revenue will also be deductible.

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