Vaccine "thank you"

As New Zealand inches closer to the 90% 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 as a whole, but also helps to minimise the commercial

impact of Covid-19.

The question of how such payments are 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 is

potentially not in connection with employment and does not comprise taxable income – but this is an extremely

high ‘threshold’.

An accepted situation in which non-taxable payments can be made to 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


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


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

employment or service.

We are all currently in the midst of 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, Inland Revenue has been active in providing guidance and implementing various concessions as a

result 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 takes into account the points raised above

and provides a taxpayer friendly view – a situation that warrants it.

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