The Ultimate Guide to Claiming Home Office Expenses

Last Updated: August 9, 2024

If you’re running a business from home in New Zealand, claiming home office expenses will reduce your tax bill. Whether you’re self-employed, a freelancer, contractor, or sole trader, understanding how to properly claim home office expenses can significantly impact your bottom line.

Many self-employed Kiwis aren’t claiming their full entitlements simply because navigating tax regulations can be confusing. We’ve created this comprehensive guide based on the latest IRD information to help you confidently claim every dollar you’re entitled to.

What Home Office Expenses Can You Claim?

Self-employed individuals are often surprised by the range of claimable expenses. While individual amounts might seem small, they add up quickly and can substantially reduce your annual tax bill.

Premise-Related Expenses

• Rent – A portion of your residential rent payments. Note that rent does not include GST.
• Mortgage Interest – The interest portion (not the principal) of your mortgage repayments. Like rent, mortgage interest doesn’t include GST.
• Rates – A percentage of council rates if you own your home.
• Home Insurance – A portion of your house or contents insurance premiums.
• Repairs & Maintenance – Commercial labor or material costs for property upkeep. You cannot claim for your own labor or for alterations that add value to the property (like extensions).

Utility Expenses

• Power/Gas – A portion of your energy bills. You can claim more than your standard percentage if you can prove your business uses proportionally more power (e.g., if your workshop is 10% of your home but uses 30% of the power).
• Internet & Phone – Typically claimed at a standard rate of 50%. Business-specific phones can be claimed at 100%, as can business-related toll calls.
• Water – A percentage of your water utility bills.

Other Home Office Expenses

• Cleaning – Commercial cleaning fees or cleaning products. You cannot claim for your own cleaning time.
• Security – Alarm system installation or monitoring (but not the alarm system itself).
• Office Consumables – 100% of supplies like paper, pens, and ink cartridges.
• Furniture and Equipment – 100% of office furniture under $1,000 per item. Items over $1,000 must be depreciated.
• Miscellaneous – Items like toilet rolls and hand soap purchased for home use.

How Much of Each Expense Can You Claim?

The amount you can claim depends on the portion of your home dedicated to business use. Here’s how to calculate it:

Calculating Your Home Office Percentage

1. Determine your home’s total area – Find the total square meters of your home (not the land). Property websites like propertyvalue.co.nz or homes.co.nz can help you find this information.
2. Measure your work space – Calculate the square meters of the area used exclusively for business purposes.
3. Calculate the percentage – Divide your work space area by your home’s total area and multiply by 100.

For example: If your home is 120m² and your office is 12m², your calculation would be (12 ÷ 120) × 100 = 10%.

Important Considerations

• The claimable space should not include bathrooms, kitchens, or garages unless they’re specifically available for customer use.
• Storage areas can be included if they’re used for business items, documents, equipment, or tools.
• If you use an area for both personal and business purposes, factor in the time spent on business activities. For example, if 10% of your home is your office but you only use it for business half the time, you can claim 5%.

The Square Metre Rate Option

Since the 2017-2018 tax year, IRD has offered a simplified method for calculating home office utility expenses:

• For the 2023-2024 tax year, the rate is $53.10 per square meter.
• This flat rate covers all utility expenses (power, internet, water, etc.)
• You don’t need to keep records for individual utility expenses.
• Premises costs (mortgage interest, rates, rent) must still be calculated separately using your floor area percentage.

Example Calculation Using Square Metre Rate

If your work area is 10m² (10% of your home) and your annual rent is $10,400:

1. Square meter rate portion: $53.10 × 10m² = $531
2. Premises cost (rent): 10% × $10,400 = $1,040
3. Total claimable expenses: $531 + $1,040 = $1,571

How to Calculate GST on Home Office Expenses

If you’re registered for GST, you need to account for GST on all eligible home office expenses. Remember that rent and mortgage interest do not include GST.

Calculating GST from a GST-Inclusive Price

Use this formula: GST-Inclusive Price × 3 ÷ 23 = GST Amount

For example, if your monthly power bill is $250:

• GST amount: $250 × 3 ÷ 23 = $32.61
• GST-exclusive amount: $250 – $32.61 = $217.39

Then apply your work area percentage to both amounts:

• Claimable GST: $32.61 × 10% = $3.26 (claim in GST return)
• Claimable expense: $217.39 × 10% = $21.74 (claim in income tax return)

Important: If you’re using the square metre rate option, you cannot also claim the GST portion of this.

Learn more about GST in our guide: GST for New Zealand Businesses: A Comprehensive Guide

How to Include Home Office Expenses in Your Tax Returns

GST Return

1. Add up the claimable GST portions of your home office expenses for the return period.
2. Combine this with GST paid on other business expenses during the same period.
3. Enter the total in the ‘Total GST paid’ box in your online return.

Income Tax Return (IR3)

Self-employed income:

1. Subtract your home office expenses and other business expenses from your total self-employed income.
2. Enter the resulting figure in the ‘Self-employed net income’ box.

For example: $60,000 income – $1,500 home office expenses – $5,000 other expenses = $53,500 self-employed net income.

Schedular payment earners:

1. Total up your home office expenses along with other business expenses.
2. Enter this figure in the ‘Expenses related to schedular payments’ box.

Important: If you earn both schedular payments and self-employed income, only claim your expenses against one type of income.

Financial Statement (IR10)

The IR10 is required for statistical purposes and doesn’t affect your tax bill. Enter all your expenses for the year, including home office expenses, in the relevant boxes.

Record Keeping Requirements

Maintain proper records for all home office expenses, including:

• Tax invoices for purchases over $100 (if claiming GST)
• Evidence of payment (invoices, receipts, etc.)
• Bank statements for business-related accounts

For expenses under $100, a bank statement showing the purchase is sufficient.

All records must be kept for at least 7 years and must be in English or Māori.

Simplify Your Home Office Expense Claims

Claiming home office expenses doesn’t have to be complicated. By understanding what you can claim and keeping good records, you can ensure you’re not paying more tax than necessary.

 

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This guide is based on the latest information from IRD and is intended as general advice. For specific questions about your situation, Business Like NZ would be happy to be engaged as your tax advisor. Please contact us for an appointment.

Remember, claiming legitimate expenses isn’t about avoiding tax—it’s about paying the right amount of tax and ensuring your business gets all the deductions it’s legally entitled to.