New Home Office Expenses Method

There is a new option for calculating Home Office expenses for small business owners which might be attractive to some business owners.

Existing Method

Business owners who use their home for work have long been able to claim a portion of their home expenses.

This has been done by dividing the floor area occupied for the purposes of the business into the overall floor area of the house. The resulting percentage can then be applied against a number of expenses, including:

  • Mortgage interest (no GST applies)
  • Residential rent (no GST applies)
  • Insurance
  • Water rates
  • Council rates
  • Repairs & maintenance expenses

So if 22% of the floor area of your house is used for the business, then you can claim 22% of these expenses.

We advise our clients to sketch a plan of their home to clearly show how they have arrived at the apportionment. It isn’t good enough to guess. You may be asked by IRD to prove the figure that you’ve used in preparing your home office expenses for your accounts. You don’t have to be an architect – just a basic sketch is fine.

You can also claim depreciation on capital items such as office desks, shelving, chairs and furniture used for the business.

Remember, no depreciation has been allowed on the value of the house or land since 2012.

There is a new option now available that you can choose to use instead of the current method.

New Home Office Expenses Method

Square Metre Rate Option

From the 2018 income year (1 April 2017 – 31 March 2018), a new square metre rate option is available.

Inland Revenue determines the rate that can be applied to everything except mortgage interest, rates or rent. The existing method will still apply to those expenses. The rate is calculated on the average cost of utilities per square metre using information obtained from Statistics New Zealand based on the average New Zealand house.

It’s a little bit like a kilometre rate for vehicles and is subject to change. The current rate for the 2018 income year is $41.10 per square metre. This may suit some taxpayers who would rather not pull all their utility bills together once a year to calculate the actual costs.

So is it worth a shot?

That will depend entirely on your circumstances and every business is different. Whichever method you use, it should be a fair and reasonable amount that you can justify.We suggest you do the sums using both methods to determine which one will maximise your deductions.

Or let us do it all for you and spend the time building your business.