Tax Updates: 4 May 2026

Welcome to this week’s review of tax issues where Richard comments on what’s been happening in the world of tax over the past week. If you have a question or would like a second opinion on any national or international tax issues, please contact Richard via email at [email protected].

Death and taxes

Ah, the two certainties in life. The latter of which has given me something to do for the past 30 years or so.

I’ve gone a little bit off track this week. This week’s item didn’t strictly come across my desk recently, but it’s a question I’ve certainly been asked — usually in advance of the actual event happening and therefore more often from the ‘what if’ perspective.

Inland Revenue (IR) released PUB00470 titled “Income tax – payments by employers on the death of an employee to executors and family” as a draft interpretation statement (IS) for consultation. With the recent passing of the Taxation (Annual Rates for 2025-26, Compliance Simplification, and Remedial Measures) Bill, I expect we will soon see the release of the finalised statement.

The IS considers whether amounts paid by employers on the death of an employee are taxable to the recipients, which could include executors and family members. Further, it also considers the deductibility of payments for the employer and their PAYE (pay as you earn) obligations in respect of payments made. Finally, there is commentary surrounding the duties of executors to file tax returns for the deceased employee and any estate that may arise.

I’d suggest that the first point made within the IS makes perfect sense — if the executor or administrator receives an amount from a deceased employee’s employer and it would have been included in the employee’s income had the employee been alive when it was received, it is income to the executor. What you may not be aware of however is the 28-day rule. If the amount’s reportable income (so salary, wages, etc) are received within 28 days of the date of death, then the executor can elect whether the amount is included in the deceased employee’s final income tax return or within a tax return to be filed by the estate (the main benefit is avoiding the need to apply for a new IRD number for the estate).

It may also come as a surprise to you that where the employer decides to make a gratuitous payment to an executor that would not have been paid had the employee not provided services to the employer, it is potentially considered to be pension income. Unless it is paid within one year of the death of the employee to certain family members of the deceased.

It is likely that most payments made by the employer to the deceased executor will satisfy the PAYE income payment definition and will be subject to PAYE deductions. The primary question here will be whether the payment is considered to be “salary or wages” or an “extra pay.” Equally, one would think that most payments made will be fully deductible for the employer, presumably satisfying the general permission and not restricted from deductibility by any of the general limitations.

Finally, executors are usually obligated to file any income tax returns the deceased employee was required to file or would have been required to file had they remained alive, and subsequently depending on the situation, estate returns.

There is a table within the draft IS commencing on page four, which provides a brief summary of the likely tax treatment (from both the executor’s and the employer’s perspective) based on the type of payment being made.

The draft IS is 29 pages in length. Though note that the last six pages may be an interesting read for you, as it is dedicated to commentary surrounding executors and their return-filing obligations. Useful, when you consider that a lot of executors will simply be family members of the deceased, who have no knowledge of what they are supposed to do next.

This article was originally published through the ‘A Week In Review’ newsletter. If you would like to receive Richard’s tax updates every Monday morning, you can subscribe here.