Article:

Employee Allowances & reimbursements for home office costs

22 May 2020

You may have read an article that appeared in the media this week that suggested tax refunds and subsidies were available for reimbursing employees for their home office costs. This article may have caused some confusion. Our update seeks to clarify what employees may be entitled to (at the employer’s discretion) and the tax treatment of this.

During the Covid-19 lock down period many businesses will have had employees working from home and have made, or may intend to make, an additional allowance payment to employees to help them cover the costs of doing so. The IRD has recently issued guidance on when such payments can be made to employees tax-free, when PAYE obligations arise, and when the employer can claim income tax or GST deductions.  The guidance was not intended to suggest that employers should make such payments to employees as the IRD understands that many employers will not be in a position to do so.

The position is summarised as follows in relation to payments made from 17 March to 17 September 2020.

 

Payments for telecommunication usage plans:
 

Amount treated as exempt income When this option can be used What evidence is required
Up to $5 per week When the plan is used to perform the employee’s job No evidence is required
25% of the employee’s cost When the plan is used at least partly to perform the employees job
  • Evidence of the employee’s costs
  • Evidence that the cost is for the employee’s job
75% of the employee’s cost When the plan is used mainly to perform the employee’s job
  • Evidence of the employee’s costs
  • Evidence that the cost is mainly for the employee’s job
100% of the employee’s cost When the plan is used exclusively to perform the employee’s job
  • Evidence of the employee’s costs
  • Evidence that the cost is exclusively for the employee’s job
GST can possibly be claimed by the employer if suitable evidence is provided by employee as part of the reimbursement claim.

 

Payments for general / other employee expenditure:
 

Amount treated as exempt income When this option can be used What evidence is required
Up to $15 per week When the $15 per week is the only amount paid for ‘other’ expenditure No evidence is required
No GST can be claimed.

 

 

Payments for furniture or equipment:

The amount that you can reimburse tax-free is based on the depreciation loss that the employee could claim as a deduction on the assets. For low-value assets purchased by employees the depreciation loss is based on the cost of the goods. To be a low value asset: 

  • Asset purchased before 17 March 2020 - cost $500 or less.
  • Asset purchased on or after 17 March 2020 and before 17 March 2021 - cost of $5,000 or less
  • Asset purchased from 17 March 2021- cost of $1,000 or less.

Most furniture and equipment assets are likely to be low-value under the amended rules.

Note that the amount you can reimburse tax-free also depends on the extent to which the furniture and equipment is used by your employees for their employment. The following table sets out the guidelines:
 

Amount treated as exempt income When this option can be used What evidence is required
Up to $400 maximum (“safe harbour”) The safe harbour amount is the only amount paid for furniture & equipment No evidence is required
25% of the employee’s cost When the item is used at least partly for the employee’s job
  • Evidence of the employee’s costs
  • Evidence that the item is for the employee’s job
75% of the employee’s cost When the item is used mainly to perform the employee’s job
  • Evidence of the employee’s costs
  • Evidence that the item is mainly for the employee’s job
100% of the employee’s cost When the item is used exclusively to perform the employee’s job
  • Evidence of the employee’s costs
  • Evidence that the item is exclusively for the employee’s job
Note that the employer cannot claim GST on the payments as the assets belong to the employees.

 

If allowances are paid over and above the exempt allowances above with a lack of evidence to substantiate the claims then the amounts will be subject to PAYE.

Should you have any queries regarding these then please do not hesitate to contact your local advisor.

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