If you use an area of your home for your business, such as your home office, garage or a workshop, you can claim a portion of the household expenses and reduce your tax bill. Don’t worry, claiming NZ home office expenses can be simple when you know how.
All self-employed people, including freelancers, contractors and sole traders, can claim expenses against their income. If you use your home for business, whether you’re self-employed, in partnership or own a company, you can claim a portion of household expenses.
As you’ve probably discovered, trying to get a straight answer on which expenses you can claim can sometime be a bit tricky. So we’ve put together this extensive article, based on the offical New Zealand tax guides and the latest information from IRD, to help you with claiming home office expenses confidently.
Which home office expenses can you claim?
Self-employed freelancers and contractors are often surprised by the amount of expenses they can actually claim. When claiming home office expenses the individual amounts can seem small at first, but they add up quickly and can reduce your tax bill substantially over the year.
Below are the majority of the home office related expenses you can claim. For a complete list of self-employed expenses, check out our personal tax deductible expenses article.
When deciding how much of each expense to claim you should always use the portion of the home you use for work (e.g 10%). Unless stated otherwise.
Rent – Rent you’ve paid to live at the property. Rent does not include GST.
Power/Gas – Power or gas bill for the property. You can claim a portion of your heating costs and lightbulbs purchased for your home. You can also claim more than the portion of your home you use for work if you can prove you use more power/gas for business. E.g if your workshop is 10% of the area of the home but uses 30% of the power.
Internet & Phone – Internet or landline for the property or your mobile phone bill. Internet and phone is claimed at a standard rate of 50%. If you have a phone that is only used for business you can claim 100% of the cost. Business related toll calls are also 100% claimable.
Water Utility – Water utility bill for the property.
Home Insurance – House or contents insurance for the property.
Cleaner – Commercial cleaning fees or cleaning products for the property. You cannot claim for your time if you are doing the cleaning yourself.
Security – Security/alarm system installation or monitoring. You cannot claim the cost of the alarm system itself.
Rates – Council rates on your property if you own the home.
Mortgage Interest – Mortgage interest only, and not the principal portion of your repayments. Mortgage interest does not include GST.
Repairs & Maintenance – Commercial labour or material costs to repair and maintain the property. You cannot claim for your time if you are doing the work yourself. And you cannot claim alterations that add value to the property, such as adding an extension.
Office consumables – You can claim 100% of office supplies such as paper, pens and ink cartridges.
Furniture and equipment – You can claim 100% of new office furniture under $500 an item. However, items over $500 must be depreciated instead.
Toilet rolls & hand soap – Toilet rolls and hand soap purchased for the home.
How much of an expense can you claim?
How much you can claim of each expense depends on the portion of the home you use for work. If part of your home (such as office, garage or workshop) is completely set aside for business use you just need to consider the floor area.
For example, if your home is 100 square metres and your working space is 10 square metres — 10% of the total area — you can claim 10% of expenses.
How to calculate your home office area:
- Determine the total square metre size of your home. A quick way to do this is enter your address into a property website such as propertyvalue.co.nz or homes.co.nz and retrieve the floor area (not the land area) of the property. For example, assume your home is 120 square metres.
- Measure the length and width of the space used as an office, or for other business activities, with a tape measure. Multiply these two measurements to determine the area of the work space. For example, assume your home office measures 3 by 4 metres. Then the office has an area 3 x 4 = 12 square metres.
- Divide the area of your work space by the area of your home. In the example above, 12/120 = 0.10 = 10 percent. This represents the percentage of your home used as a home office.
When calculating the space used for business in your home, the claimable space:
- should not include your toilet/bathroom, kitchen, garage etc. (unless specifically available for use by your customers).
- can include storage areas – if you are storing items/documents/equipment/tools used for your business.
If you aren’t using a separate area of your home for business, you’ll need to take into account the area used as well as how much time you use that area is spend on your business.
E.g. if 10% of your home is used for business, but half of the time you use that area is for personal use then you can claim 5%.
Square metre rate option
From the 2017-2018 income year IRD introduced the square metre rate option for calculating home office utility expenses. This option uses a flat rate for working out your home office expenses rather than your actual expenses. You also aren’t required to keep records for your individual expenses.
For the 2022-2023 year the square metre rate is $51.05 per square metre. The rate is updated each year.
However, the square rate method does not include premises costs of mortgage interest, rates or rent. You can still claim these costs but you need to use the percentage of floor area used for your business. So you still need to measure your work area and the size of our home.
Example:
If your work area is 10 square metres and 10% of the total area of your home. And your total rent for the year is $10,400. Then the home office expenses calculation would be:
The square metre rate portion – $51.05 x 10 square metres = $510.50
Plus the premises rent cost – 10% x $10,400 = $1,040
Equals the total claimable expenses – $510.50 + $1,040 = $1,550.50
How to calculate the GST on expenses
If you’re registered for GST you need to account for GST on all your NZ home office expenses, except for rent and mortgage interest, both of which do not include GST. The GST content on home office expenses can be claimed as they’re paid, in each GST return period, or at the end of your tax year.
When working out GST on an expense you first need to seperate the GST amount from the expense amount. Here’s Inland Revenue’s recommended formula to find the GST amount from a GST inclusive price – GST Inclusive Price x 3 ÷ 23 = GST Amount.
E.g. if your monthly power bill is $250 then the GST amount is $32.61 and the GST exclusive amount is $217.39
You then need to apply the work area percentage to both the GST amount and the GST exclusive amount to get the claimable portion.
Eg. if your work area is 10% of the home then the GST claimable portion will be $32.61 x 10% = $3.26. And the income tax claimable portion is $217.39 x 10% = $21.74
Be sure to claim the GST portion of the expense only in your GST return and not in your income tax return as well.
If you’re using the square metre rate option you can’t also claim the GST portion of your utility expenses.
How to include home office expenses in your tax return
Now we get to the part of actually claiming home office expenses in your tax returns. If you’re self-employed and registered for GST you will need to file GST returns throughout the year and an Income tax return (IR3), with a Financial Statement (IR10), at the end of the year. The following instructions relate to online returns which can be accessed through your myIR account.
GST return
Add up the claimable GST portion of your home office expenses for the return period. Combine this amount with any GST you’ve paid on other expenses during the same period. Add the total to the ‘Total GST paid’ box in your online return.
Income tax return (IR3)
If you earn self-employed income – subtract your home office expenses (along with any other expenses) from your total self-employed income to get your self-employed net income. Enter this figure in the ‘Self-employed net income’ box on the income page of your online return.
E.g. if you have $60,000 self-employed income for the year, your home office expenses are $1,500 and you have $5,000 of other expenses for the year then 60,000 – 1,500 – 5,000 = $53,500 self-employed net income.
If you earn schedular payments – total up your home office expenses (along with any other expenses for the year) and enter this figure in the ‘Expenses related to schedular payments’ box on the income page of your online return. If you earn both schedular payments and self-employed income make sure you only claim your expenses for one type of income.
Financial Statement (IR10)
The IR10 Financial Statement is part of your income tax return and is required for statistical purposes. The figures you enter in it will not effect how much tax you pay. Enter all you expenses for the year, including your home office expenses, into the relevant boxes.
Record keeping
Like you do for any other business expenses you are claiming, you need to keep invoices and other records for your home office expenses.
Records of expenses should include:
- tax invoices for purchases of more than $50 if you want to claim these in your GST return.
- evidence of payment, for example invoices, cash sale dockets or till receipts.
- bank statements for your business related accounts.
For expenses under $50 simply having a bank statement that shows the purchase is enough.
You need to keep these records for at least 7 years. Records must be in English or Māori.
Claiming NZ home office expenses with Solo
Claiming home office expenses in Solo is simple. Just enter your work area percentage and select a category for your transactions. All the tax rules and math get done for you and Solo connects directly to your bank account so you don’t have to enter any transactions. Solo even shows you how much income tax, GST and ACC you owe at any moment throughout the year and gives you all the information you need to file your tax returns.
Comments are closed.