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Household expense guide for Kiwi sole traders

How to claim household expenses for tax deductions

It doesn’t matter if you rent or have a mortgage, if you’re a sole trader and use part of your home for work and work only, then you can claim back many of your household expenses on your taxes.
 

If you use 10% of your home solely for business, for example, then (generally speaking) you can claim 10% of your household expenditures back as business expenses.

Things that can be claimed as a household expense include:

  • Electricity
  • Internet
  • Heating (gas)
  • Insurance (home & contents)
  • Rent/ mortgage payments - you can use bank statements as proof of these payments, not receipts like other expenses
  • Rates
  • Toilet paper and soap
  • Water bills
     

How to claim

The first step is figuring out the area of your house that you use solely for business - this can be measured by the equation area = length x width. Alternatively, you can search your home on homes.co.nz to get a rough estimate. 

For each expense, you will be able to claim back the percentage of your total house area that you use only for work. For example, if you have a 100m2 house and have a 12m2 office then you may claim 12% of your mortgage or rent payments as an expense.

If you only rent part of a house (e.g. you’re flatting with 3 friends), then you can still claim your home office space as an expense. The equation stays the same: take the area you use for work purposes and divide it by the whole area of the house to get the percentage of each expense you can claim back on your taxes. It doesn’t matter that you only pay for ~25% of the rent, you can still claim that percentage back of your rent, electricity, etc.

It’s important to note that you can only use the dedicated office space in your house as your home office percentage. So this needs to be a room that you use only for work (or a space in that room that you use only work work). You cannot claim back the entirety of the house, or main living areas.
 

 

 

What you can’t claim

Things that cannot be claimed as a home office expense include:

  • Food and drink
  • Furniture and electronics that are not used solely for work purposes 
  • Bedroom furniture 
  • TV subscriptions, unless it’s used only for work 

It may seem easy to claim and keep claiming various expenses as home office expenses, but it’s very important that you only claim what you use for business purposes.

Even if an accountant signs off on the liberties you want to take with your home office expenses, you’re the one who ultimately bears the risk - and the IRD can come down harshly with big fines on those who claim fraudulent business expenses. 
 


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