If you’re a sole trader and you work from home, you may be able to claim a portion of your home running costs as business expenses. Neat!
But it’s not as straightforward as working from home, and then claiming all your household costs as a tax deduction. In general, you can only claim deductions for expenses directly related to earning business revenue.
Home office expenses could fall under this category. But in order to get it right, you’ll need to do the maths. Because you’re working out of your home, and not in a dedicated office, you’ll only be able to claim the business percentage of your home office expenses.
What home office expenses can I claim?
- Rent or mortgage interest (business-use portion)
- Electricity / gas / power
- Internet and phone costs
- Council rates
- Insurance
- Office furniture (desk, chair, shelves)
- Computer equipment (laptop, monitor, printer)
- Office supplies (paper, pens, printer ink)
- Software or online tools used for work
How to calculate your home office expenses?
To work out an appropriate Home Office percentage, you can either base it on the size of your home office, relevant to the size of your home, or calculate it based on the percentage you use your home for business. Here’s how to use the simpler square metre rate option:
Based on the area of your home office
This option is generally only for people who have an area of their home dedicated to their business – eg. a literal home office.
You’ll need to figure out the area of the part of your house that you use solely for business, and then calculate the percentage of your house taken up by that area. This is the percentage of household expenses you may be eligible to claim.
Step 1: Measure the floor area of your home office. Remember NCEA level 1 geometry: area = length x width.
Step 2: Divide the total floor area of your entire home by the floor area of your home office, then multiply this by 100. What you’re left with is the percentage of your home used for your home office. Tada!
💡 If you’re not sure what the floor area of your house is, you can always try looking up your address on homes.co.nz!
For example: If you have a 100m2 house and have a 12m2 office.
In this instance, the percentage of your home used for your home office would be 12%.
Provided you meet the rest of the criteria, here are a few examples of the expenses you could claim:
- 12% of power, gas, and heating
- 12% of mortgage interest or rent
- 12% of hand soap and toilet roll
- 12% of lightbulbs
- 12% of your home insurance
💡 It is extremely unusual to have a home office percentage greater than 25%. The IRD does regularly check home office expense percentages, so you may be asked to verify how you’ve calculated your claims!
What you can’t claim
Things that can’t be claimed as a home office expense include:
- Food and drink
- Furniture and electronics that are not used solely for work purposes
- TV subscriptions, unless they are used only for work
It may seem easy to claim various expenses as home office expenses, but it’s important that you only claim what you legitimately use for your business.
Even if your accountant signs off on all your expenses, you’re ultimately the one who bears the risk – and the IRD can come down hard on fraudulent claims. Beware of big fines!
Let Hnry do it
Alternatively, Hnry can manage your expenses for you. It’s all part of the service!
For just 1% +GST of your self-employed income, capped at $1,500 +GST a year, Hnry will automatically calculate, deduct, and pay your taxes, levies, and whatnot for you. This includes:
You can use our app to raise expenses on the go, which we then manage for you and claim at the end of the financial year. Oh, and did we mention that we also file your annual tax return on your behalf? It’s all part of the service!
Better still, using the Hnry platform costs less than using a traditional accountant, and is entirely tax deductible. So what are you waiting for? Join Hnry today.