Home Office Expenses

Grange Associates Ltd - 20 January 2012

If you operate a business and use an area of your home for work purposes, you may be entitled to a tax deduction in relation to the area used. To be entitled to a deduction, the following criteria must first be met:
  • The area must be used principally for business use i.e. an office or storage area, and
  • You must keep a record of any expenses you wish to claim

What you can claim

You can claim a portion of the household expenses, including items such as:

- Rates
- Insurance
- Electricity
- Mortgage Interest
- Depreciation
- Rent
- Repairs & Maintenance

And any other expenses which relate to the use of the home for business-related activities.

If you are GST-registered, you can also claim a portion of the GST on any GST-inclusive household expenses.

How to calculate your apportionment

Work out the area used for business, and also the total floor area of the house. Divide the business area by the total area, this is the percentage of your total allowable household expenses that you can claim.

For example:

Take a home with a total floor area of 150 square metres, which includes a home office space of 12 square metres. This gives an apportionment of 12/150 = 8%

The relevant household expenses (including GST) for the year were:

Electricity $1,400.00
Rates $1,200.00
Insurance $600.00
Mortgage Interest $9,000.00
Depreciation $7,000.00
Total Expenses $19,200.00

If the business was not GST registered, the home office claim would be:

$19,200 x 8% = $1,536

If the business was registered for GST, it can then also claim 8% of the GST content for all GST-inclusive expenses, which in this case, would be the electricity, rates and insurance. This would give rise to the following GST claim:

$1,400 + $1,200 + $600 = $3,200 x 3/23 x 8% = $33.39

And our income tax deduction would then be:

$1,536 - $33.39 = $1,502.61

Home Telephone Expenses

In addition to a home office claim, any business related toll calls made from home can also be claimed as a business expense. A portion of the telephone line rental may also be claimed.

The IRD will allow a tax deduction of 50% of line rental costs without requiring proof to support the claim.

If you believe your business use of your home telephone exceeds 50%, you can claim a higher percentage of line rental costs, so long as you are able to show the actual business use does exceed 50%.

If you have a separate business telephone line in your home, you can claim 100% of the line rental on that telephone, but no deduction is allowable for the line rental on the private home line. Also, any private calls that are made on the business line cannot be claimed as a tax deduction.

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All information is correct at the date of article publication. Please note we provide the information as a service only. Accordingly, the contents are not intended as a substitute for specific professional advice and should not be relied upon for that purpose.   

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