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 if there is a connection between the use of your home and the business income being generated.
Claiming home office expenses isn’t a straightforward process, however. To get it right you need to understand which of the two calculation methods will work best for you.
How to claim
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
Option 1: Calculating based on the size of your Home Office
We recommend this option ONLY if you have an area of your home that is solely dedicated to your business (e.g. a room that you use for you Home Office).
Step 1 is figuring out the area of the part of your house that you use solely for business - this can be measured by the equation area = length x width.
Step 2 is working out the percentage of your total home represented by this space. To find this percentage you also need the total area of your house, which you can find by looking up your home address on homes.co.nz. Then you can use the following equation:
For example: If you have a 100m2 house and have a 12m2 office.
In this instance your home office percentage would be 12%.
Provided you meet the rest of the criteria, here are a few examples of what you would be eligible to 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
Option 2: Calculating based on time spent using your home for Business Purposes
We recommend using this option if you DO NOT have an area of your house that is solely dedicated to your business e.g. you work from the dining room using your laptop. *
To calculate this you should start by recording the times that you are working from home over a 4 week period. This will give you a clear indication of how much you are using your home for your business versus personal use.
For example: You record the hours you spend working from home and establish that over the four-week period, you are working an average of 5 hours a week from home. There are 168 hours a week in total (24 hours/day x 7 days/week).
In this instance you are eligible to claim 3% of your home running costs as business expenses.
Note: It is extremely unusual to have a home office percentage greater than 25%. IRD are regularly checking with customers regarding home office expense claims so you may be asked to verify how you calculated the home office percentage you are claiming for.
What you can’t claim (using either method)
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
- TV subscriptions, unless they are 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.