Posted on about 2 months ago by Laurentina Kennedy
Employer paying your rent?
Revenue says you’ll have to pay tax on it. The tax authority has just clarified how employees must account for free accommodation
Employees who enjoy rent-free accommodation from their employers must pay income tax on this benefit at their full marginal rate, including PRSI and USC, the Revenue has clarified.
In updated guidance on the tax position for an employee where accommodation is made available by an employer to an employee for his or her private use, the Revenue has set out how and when tax arises.
The update comes as an increasing number of employers are offering their staff incentives to help them cope with the ongoing rental crisis.
Web Summit for example, has a six-bedroom “crash pad” for new employees arriving in Dublin and also offers employees a rent or mortgage supplement; EY offers a salary advance of up to €2,000 for graduates that can be used to cover housing-related costs, such as rental deposit; Intercom offers temporary accommodation in an apartment or Airbnb for a few weeks plus assistance from a relocation company; UCD gives relocation expenses of up to € 4,500; and Facebook offers temporary corporate accommodation for new hires.
Senior executives can also benefit from accommodation packages.
But the new Revenue guidance has clarified in what instances tax must be paid on the benefit of accommodation - and in what circumstances it can be avoided.
Accommodation owned/rented by the employer:
The first example given is when accommodation - which is either owned or rented by an employer - is offered to an employee. In such cases, Revenue says that the employee must pay tax on the “taxable benefit” - ie the amount it costs the employer to offer the property.
Take the example of an employer renting a property for an employee at a market rent of €24,000 a year. In such a case, the employee is benefiting from notional pay of €2,000 a month, and must pay tax (PAYE, PRSI + USC) in the normal way on this. If they paid tax at the higher rate, then their “free accommodation” would result in a monthly tax charge of €1,040. If the employee was paying subsidised rent on the property - for example €1,000 a month instead of €2,000 - then the taxable benefit would be €12,000.
Where accommodation costs are paid as part of a relocation package however, employees may find that they can avoid PAYE, PRSI and USC altogether. This is because Revenue takes the view that taxation should be “relaxed” on certain relocation expenses, provided that “ the payment made by the employer towards the expenses results in no net overall benefit to the employee”.
Given the difficulties - not to mind expense - in finding accommodation in the capital, many employers are increasingly offering new hires relocation packages. A condition of benefiting from this exemption is that the expenses must be “reasonable”, and the employee must be required to move house to take up the new job.
The exemption covers up to 10 nights hotel accommodation, or rent for up to three months, and to qualify, receipts for all expenses must be kept for up to six years.
The Revenue has also clarified rules on whether or not employees who live-in with their employer should pay tax on this benefit. Typically, when an employee needs to be on call outside the normal hours, or they need quick access to their place of employment, then they won’t have to pay tax on this benefit. According to the Revenue, this covers a range of employees, including managers and night care staff in residential or respite centres (not nursing homes); live-in caretakers; student nurses; and au pairs.