Can companies claim home office expenses?

Sole traders using home offices for business have long been able to claim deductions for home office expenses. Now, through lockdowns and increased accommodations for work-life balance, many businesses have employees working full or part-time from home. This raises questions about whether companies can claim home office expenses.

Company Shareholders and Directors

If a company’s shareholder or director runs the company’s business through a home office and pays all expenses relating to the home office, Inland Revenue does not consider the company has incurred any expense. A company cannot claim a deduction for home office expenses, say in the home of a shareholder, unless it incurred the actual cost.

A company may claim a deduction where:

• the expense relates to earning business income

• the expense was incurred in the same income year the deduction is claimed, whether the company paid the provider, or reimbursed the homeowner.

Employees

If the company reimburses an employee (or shareholder-employee) for home office expenses, the reimbursement is exempt income for the employee or shareholder-employee. Inland Revenue (IRD) has extended tax relief to employers who pay staff an allowance for working from home until 2023.

Employees can receive up to $20 a week, tax-free, to cover any additional costs associated with working away from the office, such as power, internet usage or printing.

Any payments above this amount require evidence of expenses.

There is no requirement to connect working from home expenses to the Covid-19 lockdown, with tax relief applicable no matter the reason for working from home.

Employers wanting to reimburse staff for higher actual costs whilst working from home can do so, but they need to keep accurate, detailed records.

Look-Through-Companies

The owner of a look-through company (LTC) is not considered to be a shareholder-employee, though, under certain conditions, they can be considered to be an employee. If LTCs reimburse employees using their home office for work, the reimbursements are tax exempt. An owner of a look-through company can claim for home office expenses in their own right, provided they can prove the expenditure relates to their LTC income.

Keep good records, including any agreements allowing the company to use the home.

Call us for advice.