Covid-related employee costs clarified

On 30 March 2022, Inland Revenue released an interpretation statement (IS 22/01) regarding the deductibility of costs incurred due to Covid-19.

It addresses the uncertainty around the deductibility of costs incurred because of the pandemic. Employee-related costs incurred due to Covid-19 include:

• relocating employees
• retaining teams in New Zealand
• incentive payments
• provision of health and wellbeing services
• redundancy payments.

IS 22/01 states that in general, costs that relate to the employees of a business should be deductible but note that consideration may be required to determine if the costs are capital in nature and therefore non-deductible, (such as persons engaged to work on the installation of a capital asset).

Repairs and maintenance in relation to assets that are temporarily unavailable for use in deriving income due to COVID-19 restrictions or temporary downsizing of the business should generally be deductible.

Finally, payments to terminate a lease or incentivise new tenants to enter a lease should be deductible under section DB 20C and section DB 20B respectively. While costs incurred to keep teams appropriately distanced in a workplace should also be deductible unless they are capital in nature (such as a renovation to expand a building).

If you’re not sure in your situation, please get in touch.