Working from home expenses, reimbursements, and tax

Employees increasingly work from home, whether part- or full-time, or during lockdowns. It’s raised questions about how to reimburse employees for associated costs and whether businesses can claim deductions for reimbursements.

Inland Revenue guidance on the tax treatment bundles in increased household costs, employees’ work use of telecommunications devices and plans, and where employees have purchased furniture or equipment to enable them to work from home effectively.

You can reimburse employees who use their own telecommunications tools and/or usage plans for work (even where the employee is not required to work from home). The tax-exempt amount of the reimbursement is calculated in proportion to work related usage.

Where you provide phones or devices used by an employee for work, the cost of the device and usage plan is deductible. Be aware of FBT implications if the employee also uses the device for their own use.

Employees may need to buy office furniture or equipment to enable them to work effectively from home. If you wish to reimburse an employee for these, your options for calculating tax exempt reimbursements are:

• safe harbour options stating upper limits for furniture and equipment, and for telecommunications equipment or
• the reimbursement option, where allowable tax-exempt reimbursements are calculated in proportion to work use

The reimbursement option requires you to identify the cost of the asset and whether the asset is being used exclusively or principally for employment or principally for private use. For some assets you may also need to calculate relevant depreciation loss.

When you reimburse employees for equipment they need for work, you may claim those as tax deductions. If calculating reimbursements proportionate to work use, keep records of how you arrived at that.

We can talk you through how the guidelines apply to your business, as well as calculating and documenting reimbursements.

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