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IR Eases Up WFH Tax Rules

Chartered Accountants Australia and New Zealand has welcomed an Inland Revenue “temporary response” to the COVID-19 pandemic that helps employers contribute towards the out-of-pocket expenses of employees working from home.

It also supported Inland Revenue’s recognition that for many employers hit hard by the COVID-19 pandemic that reimbursing work from home costs is not an option.

“It’s money they don’t have,” said John Cuthbertson, New Zealand Tax Leader for CA ANZ.

“However, Inland Revenue have only produced a temporary solution to what is a long-term issue that the country needs to address. Working from home will become the default setting for more and more Kiwis in the wake of COVID-19 and the tax system needs to recognise that workers are bearing extra costs.”

He said before this week’s announcement the tax system didn’t really make it easy for employers to do this, requiring them to correctly categorise payments to employees as either a tax-free reimbursement of business costs or a payment in the form of an additional benefit.

“It got complicated.”

Key points of Determination EE002: Payments to employees for working from home costs during the COVID-19 pandemic

  • It is a temporary response to the COVID-19 pandemic and applies to payments made to employees for working from home costs made for the period from 17 March 2020 to 17 September 2020.
  • Under s CW 17 of the Income Tax Act 2007, such payments may be exempt income for the employees.
  • Employers may find it administratively difficult to establish the extent to which expenditure is incurred by employees in deriving employment income or is private in nature. Employers may also find it difficult to establish or estimate the expenditure each employee has incurred or is likely to incur.
  • The Determination is intended to remove some of this difficulty and reduce compliance costs for employers by providing some safe harbours.
  • Employers can calculate tax-free allowance and reimbursement amounts under s CW 17 based on their own reasonable estimates or actual employee costs.
  • Under the Determination an allowance, up to $15 per week of the amount paid, can be treated as exempt income of the employee.
  • For this weekly threshold, the employer does not need to collect information about the actual expenditure incurred by the employee or make any estimate of expenditure incurred or likely to be incurred by the employee.
  • For depreciation loss on an employee’s home office furniture or equipment, the Determination provides two options.
  • A safe harbour option, where an employer can treat up to $400 of an amount paid to an employee for furniture and equipment costs as exempt income.
  • A reimbursement option where the amount paid by an employer to an affected employee will be exempt income of an employee. The deduction that the employee could have for an asset and, therefore, the amount that can be paid as exempt income, depends on the extent to which the employee uses the asset for their employment.
  • For an employee who uses an asset principally for their employment, an amount of up to 75% of the depreciation loss on the asset (the cost of the asset, in the case of a low-value asset) can be paid as exempt income of the employee.
  • For an employee who does not use an asset principally for their employment, an amount of up to 25% of the depreciation loss on the asset (the cost of the asset, in the case of a low-value asset) can be paid as exempt income of the employee.

Read the full Inland Revenue determination – https://www.taxtechnical.ird.govt.nz/-/media/Project/IR/TT/PDFs/Determinations/Miscellaneous/EE002.pdf?la=en

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