Working From Home: Tax Status of Allowances

Most, if not all, employers and employees will now be familiar with the once illusive and distant concept of working from home (WFH). Since Covid reached our shores, flexible working practices have evolved with more employees now preferring to work remotely in any alert level, either on a full-time or part-time basis.

WFH brings unique challenges that are otherwise not encountered in an office environment. One commonly-faced situation by both employers and employees is the blurred line around work and home life. This is more than just a decrease in the ability to switch off from work; it also relates to work use of a household's power, internet and phone.

Both employers and employees should be aware of the tax implications of such costs of WFH. Employees cannot personally claim a tax deduction for costs incurred in carrying out their employment duties, such as WFH costs. If employers wish to contribute to their employee's WFH expenses and compensate them accordingly, in some circumstances that compensation will be taxable income for the employee; in some circumstances, it will be tax-exempt. Inland Revenue has provided a simplified way for employers to determine whether, and to what extent, such a payment is taxable or not; it recently extended this method for the period from 1 October 2021 to 31 March 2023.

Inland Revenue has a great deal of information about WFH (go to www.ird.govt.nz and search for working from home).

If you have specific enquiries about WFH tax obligations, do contact your accountant. Employers may also want to draft a WFH policy that outlines their expectations about this new way of working; we can help you with that.

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