Home Office Claims for business owners

In New Zealand, home office claims involve two primary methods for business owners: the actual cost method and the square metre rate method. Here's a summary of how each method works, what spaces can be included, and considerations for partial deductibility:

Methods to Claim Home Office Expenses

Actual Cost Method:

A man working from a desk in his home office with his family in the background

This method involves calculating the actual expenses incurred for the home office. You need to:

Determine the percentage of your home used for business purposes by comparing the area used for business to the total area of the home.
Expenses that can be claimed include a portion of rates, insurance, power, and mortgage interest (not principal).
Depreciation on the house itself is not claimable since 1 April 2011, but depreciation on business-related assets like office furniture is allowed.
You must keep detailed records and invoices for all expenses claimed.

Square Metre Rate Method:

This method uses a standard rate per square metre set annually by the IRD. This rate reflects the average cost of utilities per square metre for a typical New Zealand household.

This rate does not cover premises costs such as mortgage interest, rates, or rent. These can be claimed separately based on the percentage of the home used for business.
The current rate can be found on the IRD website here.

Spaces That Can Be Included

You do not need a separate area specifically set aside for business; however, the space used must be identifiable and used regularly for business activities.

The area used for business should be calculated as a percentage of the total floor area of the house.

Partial Deductibility Considerations

If the space is not exclusively used for business a further apportionment is required. The deduction must be apportioned based on the time spent on income-earning activities.

No deduction is allowed for private or domestic expenditure, so only the business-related portion of expenses can be claimed.

Record Keeping

It is crucial to maintain accurate records and invoices for all expenses claimed, similar to other business expenses.

Summary

We hope this article helps you understand how to claim a tax deduction for the space at your home that is business related. If you would like to know more about tax deductible expenses in general, check out our blog: What expenses are tax-deductible?.

If you’re still unsure whether your clothing is tax deductible, please get in touch. Business Like NZ has been providing professional tax and business advice to the Auckland region and beyond for years!