What’s the tax implication of a vaccine ‘thank you’?

As New Zealand inches closer to the 90 percent double vaccination target, the Government and business community are making every effort to reach the most reluctant individuals. Many employers are contributing by implementing initiatives to thank employees that get vaccinated.

Examples include companies paying varying cash bonuses to their employees or providing prize draws if certain firm-wide targets are met. Not only does this benefit the country, but also helps to minimise the commercial impact of Covid-19.

The question of how such payments is treated for tax purposes naturally arises. Do the payments comprise taxable or non-taxable income to the employee, and is it deductible to the employer?

Most payments to employees are taxable and this is likely to be the natural view of most accountants and Inland Revenue staff. However, in very narrow and limited circumstances, a payment to an employee may not be in connection with employment, so therefore would not comprise taxable income employees that are not in connection with their employment or service is that of hurt and humiliation under section 123(1)(c)(i) of the Employment Relations Act 2000. On this matter, Inland Revenue guidance provides payments for hurt and humiliation are “… not compensation for services rendered or actions that occur in normal course of the employment relationship”.

Another example is from Louisson v Commissioner of Taxes where the Court deemed payments by a business to a former employee in recognition of their service to their country during World War II was not taxable to the employee.

Both scenarios are examples of where a payment to an employee is not necessarily related to their employment or service.

We are all currently amid a global pandemic that is impacting economies and lives across the globe. Vaccination is widely accepted as the solution towards a return to normality. Therefore, it appears there are reasonable arguments to suggest a payment in recognition of the personal choice by an individual to get vaccinated and do their part toward a common goal for humanity generally, is not in respect of employment or service and therefore is not taxable to the recipient.

For a business, a vaccinated workforce helps minimise the potential negative consequences of having a Covid-19 infected employee within the workplace. Those consequences could include more employees getting infected, customer perceptions (both domestic and international), and infection of employees working for suppliers and contractors, i.e. up and down the supply chain. The benefits of vaccination to a business are thus evident. This lends itself to the conclusion that payments to employees should be deductible to the employer.

To date, IR has been active in providing guidance and implementing various concessions because of the Covid-19 pandemic. It has felt very much like they are also doing their part. We hope that in time, some guidance on this matter is released that considers the points raised above and provides a taxpayer friendly view – a situation that warrants it.