If you do some of your work from home, you may be entitled to claim a tax deduction for household expenses related to earning income. These include:
- Electricity
- Rates
- Insurance
- Mortgage interest/rent
- Repairs and maintenance
- Telephone rental
The amount you can claim is based on the area of your home used for the business, expressed as a percentage of the total area of the home.
It is not necessary to set aside a specific room for business purposes, nor is it necessary for you to
physically change your home to suit the business. However, in cases where a separate room is not set aside, it may be appropriate to apportion the outgoings based on criteria such as the amount of time spent on income-earning activities as home as well as the area used. Examples of areas likely to be used for business purposes include:
- An office or office area
- A storeroom or storage area
- A workshop
- A garage or part of a garage which is used to house a business vehicle
Square metre rate method
Since the 2017-18 and later income years, taxpayers can choose to use the square metre rate method to work out what to claim. Inland Revenue reviews the rate each year for taxpayers to determine how much to claim for general business expenses incurred from the home. The amount you can claim for mortgage interest, rates or rent is calculated separately, based on the area of the home used primarily for business.
Instead of working out how much of your household costs to claim as business expenses, you can
use the square metre rate option. It’s a two-step method:
- First, identify the area of the building used primarily for business purposes. Then multiply that area by the Inland Revenue rate, which excludes mortgage interest, rates or rent. The rate for the 2020/21 income year has been set at $44.75 per square metre.
- A second deduction applies for mortgage, rates or rent. These costs are calculated in proportion to the fraction of the premises that is separately identifiable and used primarily for business purposes.
GST
If you're GST registered, you can claim a portion or percentage of the GST on the expenses. You can claim the GST content on home office expenses as you pay them — in each GST return period — or at the end of your tax year. This doesn’t include mortgage interest and residential rent as there is no GST component in these.
Good records are important
It can be hard to separate business from home life completely. As with any other business expenses you are claiming, you need to keep invoices and other records for these expenses. Keep written workings of all your calculations and be sure to keep records of your outgoings in a safe place.
As part of our information gathering process each year, we will ask you for the details of your home office claim. Keep an eye out for that in your annual questionnaire.