September Tax Alert


Update on working from home allowance

Tax Alert - September 2020

By Andrea Scatchard and Jess Wheeler

An increasing number of people are working from home on a regular basis, regardless of any Government-mandated requirement to do so. In response, Inland Revenue have extended their guidance on the level of tax-free allowances employers can pay to cover increased expenses as a consequence of working from home. This is a short extension until 17 March 2021, by which time Inland Revenue plan to have released long-term guidance on such allowances.

In April 2020, in response to the requirement for all non-essential workers in New Zealand to work from home due to the COVID-19 pandemic, some employers paid an allowance to their employees to cover the additional costs to the employees of working from home. This would include costs such as utility bills from running heating and lighting, and tea and coffee and light snacks ordinarily provided at work. Inland Revenue released a Determination (EE002: Payments to employees for working from home costs during the COVID-19 pandemic), providing that a payment by an employer to their employee of up to $15 per week would be treated as exempt income and therefore tax-free to the employee. In addition EE002 allows for a lump sum of $400 to be paid tax free to the extent it is paid to employees to purchase furniture and equipment necessary to work from home. This Determination applies to payments made from 17 March 2020 to 17 September 2020. We summarised the Determination when it was first released.

In recognition of the fact that working from home is, for many, part of their “new normal”, Inland Revenue is currently considering issuing a public statement that addresses allowances paid to employees outside of a work from home arrangement that is enforced during a COVID-19 lockdown period. This public statement will not be released before the expiry of ED002 on 17 September 2020, therefore Inland Revenue, on 14 August 2020, issued a variation and an extension to the original Determination that:

  • removes the requirement that the employee’s expenses arise because the employee is being required to work from home due to the COVID-19 pandemic; and
  • extends the time covered by the Determination for a further six months, until 17 March 2021.

All other requirements in the original Determination still apply, and, as has always been the case, such allowances are paid at the discretion of the employer. For full details of the original determination, see our earlier article.

If you would like to discuss the tax treatment of any existing or planned allowances, contact your usual Deloitte advisor.

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