If you run your own business it is likely that you will have an office at home (even if you have an office at other premises).

You do not need to have a room designated as an office and a deduction for expenses may be claimed for an area that is sometimes used for your work eg a laptop in your dining room.

Some home expenses may be claimed as a business deduction based on the proportion of the home being used for the business and other expenses may be deducted according to actual or partial costs.

The most important thing is your ability to justify the proportion used and its reasonableness.

 

Proportion of home:

Separate office:

If you have a separate office room then calculate the floor area of that room as a percentage of the floor area of the whole house. For example this may be around 10%. If you work mainly from home we recommend that you add on 5% for the use of shared facilities such as the bathroom and kitchen. Keep the total at 20% or less even if you use more of the house or use a large amount of storage as there may be Council by-laws against using more than 25% of the house for business activities.

 

Office as part of a room:

If you have an area that is set aside for office space eg part of the lounge, then calculate the area of office space as a percentage of the floor area of the whole house.

 

Dual use space:

If you use a room sometimes for an office and sometimes for some other purpose eg the dining room may be used for meals at mealtime and as your office during the day or at night, calculate the percentage of time the area is used or available for use as office space. This can be quite general eg 10% but you need to be able to justify as reasonable any percentage you use.

 

Expenses:

When you have calculated the percentage area or time that the home is used for work, then the same percentage of the home costs may be claimed as a deduction against the business.

· Insurance: dwelling, contents

· Electricity

· Gas

· Water

· Rubbish collection costs

• Mortgage interest costs. Remember that part of the total mortgage paid each month/ week includes an element of principal repayment which is not claimable. Your bank should provide a statement as at 31 March each year (although you may have to ask for it) showing the amount paid for the year broken down into interest and principal. Use this interest amount for your calculation.

• Rent paid: If claiming a portion of rent costs, can’t also claim building depreciation.

• Maintenance: General maintenance costs such as plumbers’ bills for blocked drains etc may also be claimed but more substantial work such as the costs of the renovation of a bathroom will be considered a capital improvement to the building and would need to be capitalised and depreciated. Therefore the building would need to be independently revalued at your cost. Inland Revenue may then require substantiation of the extent that the building portion was used as an office etc so more substantial capital works are quite a grey area. We recommend you just claim the cost of small maintenance items.

 

Other Costs (not apportioned):

• Phone: If commercial rates are not being paid for a business line and a home phone is being used, then Inland Revenue accepts claims for 50% of the cost of line rental etc on the home phone. Extras such as the cost of toll calls, answer phones and calls to mobile phones may be separately claimed if they

are valid business expenses. If you are claiming 100% of mobile costs then only the home office portion of home phone and internet costs should be claimed.

• Depreciation of office furniture and equipment, eg office desks, chairs, photocopiers, computers and printers etc: Assets, ie non-consumable items that will still exist after a year, and which cost more than $500 must be capitalised and depreciated. This means that the cost of the asset is spread over its working or useful life.

 

Calculate the amount of home office expenses and reimburse yourself. Claim GST on the total excluding depreciation and mortgage interest.