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3 Ways to Claim Home Office Expenses in NZ

Danny Pritchard
The clock’s ticking down to tax return day. In New Zealand, tax returns must be filed by the 7th of July, although taxpayers with a tax agent can get more time if they need it. That means if you’re not one of those business owners reading this and smugly thinking “I took care of that ages ago, BOM”, then you found this guide in the nick of time. There’s not a lot of good stuff about filing taxes (too much admin and too much money coming out the bank) but one perk is home office expenses. Business owners getting it done from home can claim a portion of their household expenses on the business. Nope - that doesn’t mean you never have to worry about an electricity bill again. Please keep nagging your kids and S.O. about switching off the lights. You can’t claim everything; the amount is directly correlated to the portion of your home used for the business, as well as the amount of time your shiny home office is used. There are three ways to claim home office expenses in New Zealand. Get the inside scoop and you could just learn to love tax time. Maybe.

Here’s what you can claim (remember: you can only claim a portion of them)

Utility bills (i.e. power, gas and heating)
Mortgage interest (if you own the property)
Rent (if you’re renting, obv)
Home insurance
Toilet paper, stationery, etc.
Business subscription magazines
Computers and office furniture

Here’s what you can’t claim

Food and drink
Furniture & electronics that aren’t solely used for work (e.g. if you work from the kitchen table)
TV or streaming subscriptions

How to claim home office expenses

There’s a lot to think about if you want to keep the Inland Revenue Department happy - they’re the ones running the show. This tax return guide for small businesses should fill you with some more confidence you’re doing things right. Go check it out and then come back to learn about claiming home office expenses. The fun never ends, am I right?!

Method 1. The IRD Square Metre Rate

Short on time or just really don’t feel like calculating expenses individually? This method could be for you.

The annual square metre rate is based on the average utility costs per m2 of housing. It doesn’t include interest on mortgages, rates or rent, so you’ll need to calculate those in addition to the square metre rate method. They should be based on the percentage of space your home office occupies.

Let’s use a real-life scenario to explain. Meet Joe of Joe Bloggs Limited.

Joe doesn’t have time to calculate his utilities individually so opts for the IRD square metre rate option. We know Joe’s home office occupies 10% of his total home and that it’s used exclusively for business purposes. Joe owns the property. He pays $3000 in rates on it and $11,000 in mortgage interest every year.

Total expenses calculation: (a x b) + (c x d)

A = Total rates, mortgage interest and rent ($14,000)
B = C/total floor area (10/100) = (0.1)
C = Total area (m2) of the house that’s primarily used for the business (10)
D = Square metre rate provided by the IRD ($53.10 for the year 202-2021

($14,000 x 0.1) + (10 x $53.10) = $1,931 in deductible expenses per year.

Our friend Joe is only using his spare room for business for part of the current year. That means he’ll need to apportion the annual costs based on how many months the room has been used for business. If Joe continues to work at home in the future, he’ll be able to claim the full 12 months in the next financial year.

Method 2. The Full Expense Calculation Method

You might feel as though the IRD calculation doesn’t accurately reflect your utility expenses. If this is the case, grab your calculator again. We’re going to learn how to calculate them individually. Let’s bring Joe back.

Joe has an internet plan that costs $1500 per year; he uses it for both private and business use. The IRD allows business owners to determine the portion of expenses to claim, as long as it’s fair and reasonable. Joe calculates the internet cost based on the time he spends online for work, which is about 30%. So $450.

His power bills add up to $3000 for the year and since his office takes up 10% of the space, he can claim $300 for this.

Joe still calculates his rates and mortgage interest based on the percentage of space the office occupies (like with option one). 

$3000 rates + $10,000 mortgage interest = $13,000

$13,000 x 10% office space = $1300

Now we can summarise Joe’s full home office claim as: $450 + $1300 + $300 = $2050 total deductible expenses per year.

Joe’s accountant mentions to him that he hasn’t claimed his Insurance (House & Contents) and Depreciation of office fit-out. Joe decides he’s happy with his claim and makes a mental note to keep a better record of these costs for the following year. As with all expenses, he keeps full records of the costs claimed in respect of Joe Bloggs Limited, making his (and his accountant’s) life way easier.

Method 3. Calculating Home Office Expenses On Areas Used For Business And Personal Purposes.

What if you haven’t got an area of your house solely dedicated to your business? Say, for example, you work from the kitchen or dining room table?

This method for finding 'separately identifiable' areas involves a more detailed assessment of the space used for business purposes.

Here’s a step-by-step approach:

  1. Identify Potential Business Areas:
    • Look at the entire premises and identify areas that could potentially be used for business purposes. This includes any space where business activities are conducted, such as a desk in the garage, a section of the living room, or, in this case, the kitchen or dining room table.
  2. Exclude Non-Business Areas:
    • Ignore any part of that potential business area that cannot be used for business purposes. That is, those parts of the open plan living space that are clearly used for a private purpose; the area taken up with household furniture and appliances and the area required for the furniture and appliances to be used.
  3. Assess Business Use:
    • Determine if the remaining area is used primarily for business purposes. This involves checking if the area is used predominantly for business activities and if it contains business-related assets (e.g., a computer, business records, inventory, furniture). If the 'separately identifiable' area is not used permanently for business, then you will need work out the portion of the time spent in this area for business purposes. For example, if you move your laptop and/or screens from the table each evening for dinner or to socialise, the use of the area during this time period would be personal.
  4. Calculate Business Square Metres:
    • Measure the area in square metres that is used primarily for business purposes. This should be a separately identifiable part of the premises that is distinct from areas used for personal purposes. For example you'd take account space for your computer, screens, files and chair. As above you would need to factor in any time where the space is used for personal reasons.
  5. Apply the Square Metre Rate:
    • Multiply the business square metres by the square metre rate set by the IRD. This rate is based on the national average annual cost of utilities per square metre of housing, excluding mortgage interest and rates or rent.

NOTE: This can be a complex calculation and may not have a significant impact on your tax deduction if this a smaller area. We recommend you speak with your accountant or tax advisor about this method as it can get confusing!

Are you GST registered? This one’s just for you…

The GST on home office expenses can be claimed as they’re being paid, in each GST return period or at the end of your tax year. Remember mortgage interest and rent don’t include GST, so you might find working it out at the end of the tax year means less admin. And that’s a win in our (tax) books. 

Just for the record, good records are important

We know you’ve got a million other things on your to-do list, but keeping records makes doing your tax return much easier - and it’ll save you a bunch of time, too. Completely separating business from home life can be hard. As with any other business expenses you’re claiming, keep invoices and other records for all of these expenses. Keep written workings of all your calculations and store records of your outgoings somewhere safe.

Let BOM take care of things

When it comes to tax returns, you don’t have to go it alone. Bring on Monday offers a tax returns and support service from just $49 a month. We can help you determine the best way to claim home expenses so you’re paying the right amount of tax and won’t get a slap on the wrist (or worse) from the IRD.

Don’t be shy - let’s jump on a call!

Danny Pritchard

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