Not all payments to staff need to be taxed, and can be treated as exempt income for the employee. For example employers can pay staff for using a home office space using either actual expenditure or through an exempt allowance.
Actual Expenses
Employers can reimburse staff for actual expenditure connected with their employment. This means the expenditure should be incurred in performance of employment obligations and the expenditure should be necessary to perform the employment obligation effectively. It’s important to note that the expenditure reimbursed must be additional to any personal expenditure typically incurred by the employee. These can typically be “utilities” costs such as electricity, gas, telephone and internet charges.
Exempt Allowance - Update Rates
Starting from April 1, 2023, the following amounts can be considered as exempt allowances when they meet the requirements of section CW 17:
Reimbursement for working from home: $20 per week (previously $15)
Reimbursement for use of personal telecommunications equipment or plans: $7 per week (previously $5 in Determination EE003).
This means Employers can pay staff up to $27 per week as exempt income for use of home office and telephone without requiring the employees to provide receipts for actual expenditure.
Understanding the taxation and exemption rules for employee reimbursements is crucial for both employers and employees. By adhering to the provisions outlined in section CW 17 and considering the limitations and determinations provided by the Commissioner, employers can ensure compliance while appropriately reimbursing their employees for work-related expenses.