As a result of Covid-19, some employers and employees have decided to make working from home permanent.
This raises the issue of what it costs the employee for the use of their home and the extent to which an employer can reimburse for this and have the payments tax free for the employee.
Inland Revenue has considered this matter.
The general principle is an employer can reimburse the employee for a share of costs.
Jane works from home and pays rent of $400 a week.
Ten percent of the area of her home is used for work so she can be reimbursed $40 a week.
Jane’s office has a desk, chair, bookshelves, carpet, curtains and so on.
Inland Revenue recognises it is probably impractical to reimburse for the depreciation of these assets.
It has therefore set a one-off payment of $400 as the maximum amount an employer can reimburse an employee for equipment.
Once this has been paid it can never be paid again to that employee.
You should note you do not have to choose the $400 option.
You are entitled to work out an actual cost (or a reasonable estimate) of the assets and apply the depreciation rules if you wish.
If an employee uses an asset principally for business, the maximum claim permitted is 75 percent of the yearly depreciation loss on the asset, unless it costs less than $1000, in which case you can take up to 75 percent of what it cost.
Use of the telephone is treated differently. You are entitled to work out a reasonable estimate of the share of the cost of using an employee’s telephone, but this could be impractical. Inland Revenue recognises this.
Two situations arise:
- Employee does not use their own phone or usage plan – maximum reimbursement up to $15 a week.
- Employee does have their own equipment and/or usage plan – maximum reimbursement up to $20 a week.
All reimbursements are exempt from tax.