Lockdown & beyond: claiming tax expenses when working from home
COVID-19 forced more than 40% of the workforce in New Zealand, in every industry, to work from home during lockdown. And according to Infometrics senior economist Brad Olsen, remote working is likely to be a key change for post-pandemic New Zealand with 36% of the workforce continuing to work from home in level 1. Having experienced working from home during lockdown, many workers are now taking a split approach to working – some days in the office and some days at home, where their jobs allow.
One key question this raises is how does working from home affect your tax, your business tax and that of your employees?
If you own and run a business, and work from home for part of the time, you can claim some expenses from your taxable income. The amount you can claim is proportional to the amount of space you use when working from home and the amount of time you work from home. To find out more read our blog on the ‘dos and don’ts of home office expenses’ or feel free to call us and we are happy to answer any questions you have.
But how does this work for your employees? When they are in the office you are expected to provide them with a computer, an ergonomically set up workplace, stationery, the internet and electricity. So, who pays for these things when they are working from home? Especially if, as in the case of lockdown, this is forced. Unfortunately, as they are not self-employed or running the business, the ‘employment limitation’ in the Income Tax Act 2007 precludes them from claiming deductions for expenditure incurred in the course of deriving income from employment.
As an employer you may choose to provide some form of reimbursement to your employees for working from home during the lockdown period to cover additional expenses. You may even have agreed to some employees continuing to work from home on a regular basis.
If this is the case, you may like to consider:
- How you apportion any payment to your employees for working from home will affect whether or not is it possible to claim tax against it. A reimbursement of expenses is not subject to tax. An allowance is subject to PAYE.
- The amount to reimburse is not easy to determine. As for the owner of the business the % of costs must be proportioned based on the space of the home used for work, or by using the fixed rate determined by the IRD based on the average New Zealand household.
Here to help
If you would like to know more about reimbursing your employees for working from home, talk to your friendly accountant .