$27 tax free per week?

The tax free allowance many overlook ??

Turns out, working from home IS a thing and often employee's pay costs associated with this.

During the cerveza sickness, the IRD increased the tax free allowance when working from home (because so many people were).

Basically, employees can receive up to $20 a week, tax free, to cover any additional costs associated with working away from the office. I.e. power, telephone, internet usage or printing.

NOTE: this is paid by their employer IF THEY WANT TO, it is not an obligation.

This was set to expire on the 31st of March 2023. BUT it looks like (not confirmed) these allowances will most likely roll over and the limits will increase too.

To bring you up to speed, here are some examples of which an employer could agree to reimburse an employee for some or all of the cost of:

- equipment (for example, a computer) or furniture they bought for the purpose of working from home; or

- their mobile phone, heating or Internet plan, if they use it for work as well as for personal use.

From the 1st of April, the IRD are looking to change the limits to $7 per week for the use of telecommunications plans and equipment. As well as $20 per week for general expenditure.

Now, if we step through this, if someone qualified to be reimbursed $27 per week because their work from home is not of a minor nature, that is $1,404 per year.

Most people in this situation would be earning above $48,000 in NZ and every dollar above $48k is taxed at 30%, so a $1,000 PAYE salary becomes $700 after tax.

The tax-free allowance is the equivalent of $2,000 pre-tax PAYE income for most.

HOWEVER, these allowances are NOT to be made as part of a salary sacrifice arrangement. I am simply pointing out how meaningful this allowance could be to employees.

This is a good way to repay staff (tax free) who are genuinely working from home & spending their money on helping operate their employee’s business.

Of course, humans are quick to look at it as a loop hole rather than how relevant it actually is to them.

‘Free’ money often excites people and they miss the details. All this allowance is, is a ‘general rule’ to allow employers to genuinely reimburse those staff members working from home a lot that are incurring costs associated with completing their role/duties.

?? For employees; the employer pays (if they want to), not the IRD. This isn’t something you jump online and claim. It is not your ‘right’ to receive this allowance.

?? For employers; the main point to remember with this reimbursement is that if you reimburse an employee for costs associated with working from home, the payment will not become part of their taxable income (they do not pay tax on it), and businesses can claim a tax deduction for it. PLEASE check with your accountant before taking action. Remember to keep records too.

?? For self-employed people; you may be claiming home office expenses yourself, so don’t confuse this with that.

This is simply a reminder of how many things there are going on (and changing) in the tax world that it can be very complicated for businesses and individuals to keep up with.

The reason that these rules exist is that a business owner can claim a percentage of their home office costs as a business expense but typically an employee can not.

The rules seek to allow the employer to reimburse the employee for some of these costs where they relate to working from home.

As our working lives become more entangled with working at home, at a cafe and on the go, it will be interesting to see how ‘old’ rules are tweaked to make for a more fitting set of tax rules.

There’s ya tax lesson for March!

Just in time for the end of the financial year - exciting times for geeky accountants.

Have a great weekend,

Luke

P.s. You are one of?7,150+?recipients. Know?someone you could share this with? There is also a KTC podcast with over 14,600 monthly listeners.

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