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If you’re a business owner and use part of your family home for work, you can make a claim for this as a business expense.
You can claim a portion of your household expenses, such as rates, insurance, power and mortgage interest. The portion you can claim relates to the area of your home that you use for business.
Apportioning your household expenses
If part of your home is completely set aside for business use you just need to consider the floor area. If it is not completely set aside, you also need to consider the amount of time that part of your home is used for income-earning activities.
If you are registered for GST the expenses you claim will not include GST, when this applies. If you are not registered for GST the expenses will include GST.
If you have a mortgage you can claim the same proportion of your mortgage interest (but not the principal) paid during the year. There is no GST involved in this.
Like you do for any other business expenses you are claiming, you need to keep invoices and other records for these expenses.
Using your home for your business
Al runs a dog obedience school from a home office. His office is 8% of the floor area of his house and it is only used for the business. He is registered for GST, which means he can claim 8% of his total rates, insurance, and power (excluding GST). He can claim 8% of the interest he pays on his mortgage, which does not have a GST component.
This situation changes over summer when Al has a lot of guests. As a result his home office is used as a guest bedroom half the time. Over summer he can claim 4% of the household expenses.
Depreciation on your home is not claimable. Depreciation could be claimed before 1 April 2011 – if you did this, when you sell your home or stop using it for business purposes you will need to include the depreciation recovered in your tax return.
You can claim depreciation on capital items such as a computer, office furniture and fittings used for business purposes in your home.
If you run your business from home you can claim a deduction of 50% of the rental of a telephone landline if this is also your private line. Business-related toll calls are 100% deductible.
If you have a separate business line, you can claim the full cost of this for both income tax and GST. If you make any private calls on the business line and are charged for these, you will have to make an adjustment.
If you run your business from home and have an internet plan for both business and private use, you can claim part of this as a business expense. You can decide how to work out the business proportion, but it needs to give a fair and reasonable result. You must also meet normal record-keeping requirements.
Square metre rate option
Instead of working out how much of your household expenses will be apportioned to your business, you can use the square metre rate option. This uses a rate that we set each year based on the average cost of utilities per square metre of housing for the average New Zealand household.
This rate does not include premises costs of mortgage interest, rates or rent. You can also claim a portion of these based on the percentage of floor area used for the business.
The equation for the square metre rate option is: (a x b) + (c x d)
a is the total amount of mortgage interest, rates and rent you have paid during the year
b is the area calculated by c divided by the total floor area of your home
c is the total area (in square metres) of your home that is separately identifiable and used primarily for the business
d is the square metre rate that is published by Inland Revenue.
The square metre rate for the 2017–2018 income year is $41.10 per square metre.
The square metre rate for the 2018–2019 income year is $41.70 per square metre.
More detailed information on using the square metre rate option can be found in Operational Statement OS 19/03, Square metre rate for the dual use of premises.