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Reimbursement for employees working at home

September 15, 2023

Inland Revenue’s opinion is any reimbursements to employees must equate to the
necessary additional costs arising due to the employee working at home.
The Department has taken a very narrow interpretation of this. It effectively says the only extra costs are the variable costs, for example the power bill. It claims the employee does not incur any additional cost of rent, rates and interest on mortgage, for example, as a result of working from home.

For the self-employed, partner in a partnership or shareholders in a look-through company
there is no problem because they can apportion all costs on an area basis. A look-through
company is not a company from the Inland Revenue perspective. It is a partnership. For
shareholder employees, there is a problem because they are employees and need to be treated
as such from a tax perspective.

There is a perfectly reasonable way around this. The shareholder employee should charge the
company a market rental for the space used. This would become tax-deductible for the
company and taxable income for the shareholder employee. The individual could then deduct
a fair share of the costs of the house against the rental income and show a small profit in their
tax return.

If you are feeling generous towards your employee working from home, you could use exactly
the same principle as in the paragraph above. The employee could charge your business a fair
market rent and claim a fair share of costs against this, returning any surplus is taxable

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