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, Revenue has clarified.
In an 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, 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.
Event organisers 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; professional services firm 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. Former FAI chief executive John Delaney for example, had his monthly rent of €3,000 paid for by the soccer association for an apparent prolonged period, it has been disclosed.
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 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 and 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.
Relocation packages
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 and expense in finding accommodation in Dublin, for example, 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.
Live-in employment
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 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.
