Standard-cost household service for home share care providers

This determination may be cited as "Determination DET 09/01: Standard-cost household service for home share care providers".

This determination also appears in Tax Information Bulletin Vol 21, No 3 (May 2009).

Introduction

This determination is made pursuant to section 91AA of the Tax Administration Act 1994.

1. This determination sets out the standard-cost household service that has been provided as homeshare care services by taxpayers, who are natural persons, in the service providers (‘taxpayers') own domestic accommodation.
2. It also sets out the components of expenditure that are generally incurred in the provision of the standard-cost household service by these taxpayers.
3. This determination determines a figure for a cost or costs that for the purpose of the Tax Administration Act 1994 may be treated as being incurred by a taxpayer in deriving:
   
   

   1. exempt income; and
   2. gross income.
4. This determination also prescribes a method of calculating such a figure, as set out in paragraph c.

Application

This determination only applies to services provided by homeshare providers via the Presbyterian Support (Upper South Island) Homeshare programme operating in the Mid Canterbury area.

The determination applies only to natural persons, being homeshare care providers, who provide the service in their own domestic accommodation.

The standard costs contained in this determination are inclusive of goods and services tax ("GST"). Persons who are registered for GST may be required to make an adjustment to their GST return to the extent that they have claimed GST back on goods and services which are subsequently used in providing homeshare services, ie as these costs would not have been incurred in the course or furtherance of their taxable activity.

This determination, unless specifically withdrawn, shall apply from the 2009 and subsequent income years.

Definitions

In this determination, unless the context otherwise requires:

Expressions used have the same meanings as those in sections CW 61 and YA 1 of the Income Tax Act 2007 and section 91AA of the Tax Administration Act 1994:

"Homeshare care" means the provision of a day activity programme for older people, aimed particularly at those in rural areas who have difficulty accessing centralised services, using local people as hosts. Service providers are contracted to provide a daytime base in their own accommodation, hosting activities, companionship and meals. Note: This service is not to be confused with a homeshare partnership between a householder, usually an older person with a spare room, and a homesharer, a younger person who in return for accommodation provides help around the home or companionship and/or security.

"Standard-cost household service for homeshare care providers", in relation to any homeshare care service, means the standard-cost that has been determined by the Commissioner of Inland Revenue for the purpose of the Income Tax Act 2007 and the Tax Administration Act 1994.

Determination

Provision of homeshare care service

A homeshare care service shall be a standard-cost household service where:

1. the service provider is a natural person; and
2. the homeshare care service requires the use of the service provider's domestic accommodation; and
3. the homeshare care service involves activities that commonly occur in a family household; and
4. the homeshare care service provided is in accordance with the Home and Community Support Sector Standard (NZS 8158:2003); and
5. The service is provided on as part of the Presbyterian Support (Upper South Island) Homeshare programme.

Standard-cost for homeshare care providers

A service provider who in an income year derives gross income from providing a homeshare care service may elect to deduct the expenditure as set out in this determination.

Where a service provider makes such an election, they shall not deduct any additional cost of providing the homeshare care service, if the additional cost relates to a type of expenditure that is covered in this determination.

1. Variable standard-cost
   Variable standard-cost shall be:
   
   

   1. $16.20 each day, for the first guest, and
   2. $12.85 each day, for the second and subsequent number of guests.

   
   This shall cover expenditure on items such as electricity/fuel, food, wear and tear, outings and associated transport costs, laundry, educational resources, equipment and first aid.
2. Fixed standard-cost
   Fixed standard-cost shall be calculated on an annual basis and shall not vary in relation to the number of guests under care. Fixed standard-cost shall comprise two categories, namely administration and record keeping, and domestic accommodation.
   
   Administration and record keeping fixed standard-cost shall be $260.00 per annum and shall include such items as the use of telephone, postage and stationery, the use of computers and other incidental administration costs.
   
   The domestic accommodation fixed standard-cost is to be calculated using the formula relevant to the service provider circumstances, ie whether they own or rent their domestic accommodation.
   
   Additionally, where the service provider is entitled to an accommodation supplement, the annual deduction calculated shall be reduced by the amount of the accommodation supplement received.
   
   

   1. Homeshare care provider who owns their domestic property
      
      Where the service provider owns their domestic property, the domestic accommodation fixed standard-cost shall be determined in accordance with the following formula:
      
      
      [(a x 5%) - b] x 50% x 8%
      
      Where:
      
      

      a	is the purchase price of the domestic property; and
      b	is the annualised amount of accommodation supplement received by the service provider (ie weekly amount received x 52 weeks); and
      5%	represents the expenditure normally incurred in owning a domestic property, including depreciation of the building and outgoings such as rates, insurance, mortgage interest cost; and
      50%	represents the usage factor that is based on usage by area such as bedrooms, kitchen, laundry, toilet/bathroom, other living areas and the use of outdoor areas; and
      8%	represents the availability factor that is based on a five and a half hour day for an average of two and a third days each week, averaging 12 and two third hours per week.

   2. Homeshare care provider who rents their domestic property
      
      Where the service provider rents their domestic property, the domestic accommodation fixed standard-cost shall be determined in accordance with the following formula:
      
      
      (a - b) x 50% x 8%
      
      Where:
      
      

      a	is the annualised rental payment (ie weekly rent paid x 52 weeks); and
      b	is the annualised amount of accommodation supplement received by the service provider (ie weekly amount received x 52 weeks); and
      50%	represents the usage factor that is based on usage by area such as bedrooms, kitchen, laundry, toilet/bathroom, other living areas and the use of outdoor areas; and
      8%	represents the availability factor that is based on a five and a half hour day for an average of two and a third days each week, averaging 12 and two third hours per week.

3. Exempt income
   
   The sum of the variable standard cost and the fixed standard cost calculated in accordance with this determination, relevant to the homeshare care provider's circumstances, shall be treated as exempt income or expenditure incurred in providing the services.

This determination is made by me, acting under delegated authority from the Commissioner of Inland Revenue under section 7 of the Tax Administration Act 1994.

This determination is signed on the 15th day of April 2009.

Rob Wells
LTS Manager, Technical Standards

Commentary on determination DET 09/01

This commentary and its appendices do not form part of the determination. They are intended to provide assistance in the understanding and application of the determination.

Standard-cost basis and actual-cost basis

1. In accordance with section 91AA(3) of the Tax Administration Act 1994, a homeshare care service provider who uses the standard-cost basis set by the Commissioner in determining their income tax liability has elected this basis to be appropriate for their circumstances.
2. A service provider who elects to use the standard-cost basis determined by the Commissioner must use this basis to calculate their income tax liability for the elected income year.
3. The service provider must adopt either the standard-cost basis or the actual-cost basis, but not both, for an income year with the exception of one-off costs actually incurred (refer to the commentary on additional costs).
4. As the use of the standard-cost basis is optional, service providers will not be precluded from adopting the actual-cost basis or from opting in and out of the standard-cost basis for any subsequent income year.
5. A service provider who does not elect to use the standard-cost basis set by the Commissioner in determining their income tax liability must use the actual-cost basis. In electing to use the actual-cost basis, the service provider must ensure that they have adhered to all the record keeping requirements for verifying the costs.

Income tax implications and filing of tax returns

The following income tax implications apply to a service provider who elects to use the standard-cost basis set out in the determination.

1. Standard-cost expenditure that exceeds payments received is not available as expenditure against other income for any income year, nor can it be carried forward to future income years.
2. In accordance with section 33A of the Tax Administration Act 1994, a service provider would not be required to file a tax return for that income year if:
   
   
   1. after deducting the amount of standard-cost under the determination, the service provider has zero income tax liability; and
   2. the service provider did not have any other income where tax has not been deducted at source.

Goods and services tax (GST)

As the annual turnover from homeshare care services is expected to be well below the registration threshold for GST and it is presumed that service providers will not be registered for GST for the homeshare care service activity. Therefore, the standard-cost components determined by the Commissioner have been prepared on a GST inclusive basis.

Purchase price of domestic property

The purchase price of a domestic property will include any subsequent cost of improvement to the domestic property. Service providers will be required to provide verification of such additional costs incurred, if applicable.

Receipt of accommodation supplement by a service provider

A service provider may be entitled to an accommodation supplement. The Ministry of Social Development assesses each applicant's entitlement based on a set of guidelines. The assessment of entitlement takes into account such factors as accommodation costs, income and assets, family status, employment status and residential location. Where a service provider is entitled to an accommodation supplement, the amount of annual domestic accommodation fixed standard-cost calculated will be reduced by the annual amount of the accommodation supplement received. The examples in Appendix B illustrate how the receipt of an accommodation supplement affects the calculation of the annual domestic accommodation fixed standard-cost.

Additional costs

Where a service provider has incurred additional one-off costs, which have not been taken into account by the Commissioner in arriving at the standard-cost in the determination, such costs will be allowed as an additional deduction. The service provider must however demonstrate to Inland Revenue that such costs have been incurred for the Homeshare care service they provide. An example may be expenses incurred to comply with the training requirements of the Home and Community Support Sector Standard (NZS 8158:2003).

Reimbursements

Where a funding organisation or guest reimburses a service provider for specific costs incurred, these costs are not allowed as deductions against their gross income. For example, the money received from guests for the admission fee to the cinema is not regarded as gross income. The admission fee to the cinema will not be allowed as a deduction to the service provider.

Appendix A: Weekly variable standard-cost items

The standard-cost per guest has been based on the cost for an operation providing services to three guests on a weekly basis (average two and a third / three days) as below:

Explanation of weekly variable standard-cost items

Electricity/fuel ($10.00)
This covers the use of all appliances including the cost of heating, lighting and hot water. It includes other heating fuels such as gas, wood and coal.

Food ($21.00)
This covers the cost of food that is supplied and includes basics such as bread, milk, fruit juice and biscuits. The cost of baking involved/provided for guests is also included in this figure. It also covers incidentals such as tea and coffee consumed by service providers and guests.

Wear and tear ($7.50)
These cover all related expenses and include such expenses as the cleaning of carpets, repairing/replacing furnishings (e.g. rugs, linen), repairs and maintenance of equipment and appliances.

Laundry ($5.00)
This not only covers obvious cleaning and laundry products but also rubber gloves, toilet paper and other similar items.

Equipment ($4.00)
This covers the cost of providing indoor and outdoor equipment such as video tapes/DVDs, puzzles and games.

First aid ($1.00)
This covers the requirement to have a first aid cabinet equipped to the standard set by the Ministry of Health/District Health Boards.

Appendix B: Application of the standard-cost basis as determined by the Commisioner for homeshare care providers

Example 1

A service provider owns a domestic property. The purchase price of the domestic property is $200,000. The service provider receives an accommodation supplement of $10 per week based on the location of the domestic property and their individual circumstances. Therefore, the domestic accommodation fixed standard-cost that the service provider may elect as a deduction per annum is:

[($200,000 x 5%) - ($10 x 52)] x 50% x 8% = $379.00

Example 2

A service provider rents a domestic property. The rent is $200 per week. The service provider receives an accommodation supplement of $20 per week based on the location of the domestic accommodation and their individual circumstances. Therefore, the domestic accommodation fixed standard-cost that the service provider may elect as a deduction per annum is:

[($200 x 52) - ($20 x 52)] x 50% x 8% = $374.00

Example 3

A service provider owns a domestic property, which costs $200,000. The service provider receives an accommodation supplement of $10 per week based on the location of the domestic property and their individual circumstances.

The service provider provided care for an average of three guests in the income year for a total of 96 days. The service provider elected to use the standard-cost basis in accordance with determination DET 09/01: Standard-cost household service for homeshare care providers.

The service provider's income tax liability is calculated as follows:

Example 4

A service provider rents a domestic property for $200 per week. The service provider receives an accommodation supplement of $20 per week based on the location of the domestic accommodation and their individual circumstances.

The service provider provided care for an average of three guests in the income year for a total of 96 days. The service provider elected to use the standard-cost basis in accordance with determination DET 09/01: Standard-cost household service for homeshare care providers.

The service provider's income tax liability is calculated as follows: