Although the housing provided by farmers to their contract or sharemilker is the same as employees, the accounting differences are substantial. The key reason for the difference in accounting treatment is that sharemilkers and contract milkers are independent contractors rather than employees.

In this article, we will use the term ‘sharemilker’ to cover both sharemilkers and contract milkers. Section CE 1(b) of the Income Tax Act 2007 details that the market value of accommodation received is to be included as part of a total remuneration package. This applies to employees only. As sharemilkers are not employees, this section does not apply. Under the Sharemilking Agreement Order 2011 (Lower Order Sharemilking) sharemilkers are provided a free house for their own use and also housing for their own employees. This is considered part of the infrastructure of the business, the same as any other building, e.g. cowshed or calf sheds. There is no formal statutory agreements for 50/50 Sharemilking Agreements or for contract milkers, but similar accommodation clauses generally apply. The free house supplied to the sharemilker is treated as being rent free, and no adjustment is made for tax purposes by either the owner or the sharemilker. This is because the sharemilker is an independent person or entity (such as a Partnership, Trust or Company) rather than an employee. Occasionally, we see situations where a farm owner is taking on contract milkers for the first time and they look to include the house at a market value as part of the remuneration. This is generally due to a misunderstanding as they look to apply the same rules as they had to previous employees. Although the approach is wrong, it does show that Inland Revenue’s and MBIE’s message on accommodation at market value has gotten through.

The situation is different for the employees of the sharemilker. If the sharemilker provides their employees with a house, the deemed market value of the house is caught within the definition of monetary remuneration. The market value of the rental is included as part of their salary package and PAYE must therefore be deducted. Market value will be determined by market rental rates in the region. The sharemilker is the landlord and is responsible for conducting property inspections and for any damage from tenants.