Claiming costs for home office - new rules
If you use part of your home for business purposes, you are able to claim some of the related costs. There is now a simplified option for calculating what you can claim, which can apply from the 2018 income year.
The first step (under both the old method, and the new simplified method) is to calculate the percentage of the private residence that is used primarily for business purposes. The area has to be separately identifiable, but it doesn't have to be walled off. For example, you could use a corner of your lounge (containing files, computer and desk), as a home office. Any traffic areas or living spaces are not to be included. If the space used for business is, for example, 8 square metres, and your total building area is 100 square metres, then you can claim 8% of the relevant costs. This 8% is your "business proportion".
The types of expenses for which you can claim the "business proportion" are as follows:
utility type charges such as electricity, gas, home and contents insurance, telephone, mobile and internet charges, water, alarm;
premises costs (mortgage interest, rates and rent).
Under the old (non-simplified) method, you had to keep detailed records of all the utility type charges and claim a proportion of each. Now the IRD has advised that there is a simplified square metre rate that can be used for these costs. It has been set by using information obtained from Statistics New Zealand used to calculate the national average, annual cost of utilities for the average sized New Zealand household. The square metre rate for the 2017 - 2018 income year, utility type charges is $41.10 per square metre and $41. 70 per square metre for the 2018 - 2019 income year. The advantage of using the new method is that you don't have to keep track of your actual costs - just apply the square metre rate at the end of the year.
So, for example, if you have 8 square metres of office space, used for the full year, you can claim $333.60 for the year (8 x $41.70).
This square metre rate does not apply to premises costs (mortgage interest, rates and rent) because they are too variable to allow for a "one size fits all" approach. The proportion of these will still need to be calculated based on actual costs.
Please note that these calculations are based on the business area being used primarily for business purposes for the entire year (and not changing at some time during the year). Where this is not the case and the business area and/or the primary use of that area changes, the amount claimed will have to be adjusted accordingly.
This claim can be made when we do your tax calculations at the end of the year. Please call us if you have any questions about claiming costs for a home office.