Telephone & Working from Home Tax Free Reimbursements

Earlier in the year, IRD released a determination providing guidance for employee use of telecommunication tools (i.e. telephones) and usage plans in their employment. More recently, IRD have released a further determination for tax free working from home costs relating specifically to COVID-19.

In relation to telecommunication tools used by an employee in their employment, IRD accept that a tax free allowance can be paid for a reasonable estimate of costs. Where an employee provides their own telecommunication tools and usage plan, there are three alternatives that can be applied:

  1. Principally business use – employers can treat 75% of the total bill either by reimbursement or reimbursing allowance, as exempt income of the employee. If the employer pays more than 75%, the amount over 75% is taxable
  2. Principally private use – employers can treat 25% of the total bill either by reimbursement or reimbursing allowance, as exempt income of the employee. If the employer pays more than 25%, the amount over 25% is taxable
  3. De Minimus – employers can make a payment of $5 per week, amounting to no more than $265 per year per employee, either by reimbursement or reimbursing allowance, as exempt income of the employee

In relation to the working from home costs during COVID-19, IRD accept that employers can pay a tax free reimbursing allowance to employees for reasonable costs incurred, such as power, phone and office tools. The amount can either be calculated based on a reasonable estimate of actual costs or IRD have published a weekly amount of $15 which can be paid in addition to the above telecommunication allowance with no need to collect any information about the actual expenditure incurred by employees. In summary, a total of $20 per week per employee can be paid tax free with no need to have any back up evidence of the costs for the period employees worked from home due to COVID-19.

Please note that the NZ Herald published a misleading article suggesting employees working from home could ask their employers to approach IRD to organise a $15 per week tax refund. This is not correct. The tax free allowances as above can be paid if the employer chooses to do so but there is no refund from IRD available.

In addition to the above allowances, employees can also receive a one off tax free reimbursement for office furniture or equipment purchased by the employee of up to $400 due to COVID-19. For items costing more than this, you can either apply the $400 option or reimburse a greater amount but limit the tax free reimbursement to the amount of depreciation deduction that an employee could have had if they were able to claim depreciation with the balance being taxable.

If you would like to know more about these reimbursing allowances, please contact your client manager or our payroll team.