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Business income tax
Te take whiwhinga pakihi
Claiming business expenses: Using your home for the business

Using your home for the business

Many people who run a small business use an area set aside in the family home for work purposes. If you are doing this, you can make a claim for the area set aside so long as:

  • it is used principally for business use (such as an office or storage area), and
  • you keep a full record of all expenses you wish to claim.

The responsibility for keeping invoices and records for a home office is the same as for any other business expenses you are claiming. You can claim a portion of the household expenses, such as the rates, insurance, power and mortgage interest. You must keep invoices for these expenses.

You can only claim the expenses that relate to the area set aside for business. Work out the percentage of the work area, compared to the total floor area of the house. Then apply this percentage to the total house expenses.

Example  

In a house of 100 square metres Mereana sets aside 10 square metres as an office (10% of the total floor area). GST-inclusive house expenses for the full year were:

Rates $1,200.00
Insurance (house) $  400.00
Power $  960.00
Total costs (including GST) $2,560.00
Multiply total cost by 3, then divide by 23 to get the GST content $  333.91
Total costs (excluding GST) $2,226.09

If Mereana is not registered for GST the amount to claim is 10% of the total costs including GST:
$2,560 x 10% = $256

If Mereana is registered for GST the amount to claim is 10% of the total costs excluding GST:
$2,226.09 x 10% = $222.60  Mereana can also claim 10% of the GST content of these items in her GST return, she can claim this either annually or on a period-by-period basis.

Claims on mortgage interest

You may also claim a proportion of the mortgage interest (not principal) paid during the year. There is no GST involved in this item, so it is easier to work it out separately. Use the same method of the business floor area percentage to work out what to claim.

Example  

The business floor area is 10%.

Mortgage interest paid
(not principal repayments)
$2,340

The amount to claim is:
$2,340 x 10% = $234

 

Note  
  • Depreciation on your home is not claimable from the 2011-12 year onwards. If you claimed depreciation on your home in prior years you must include the depreciation recovered in your tax return when you cease using your home for business purposes, or when you sell your home.
  • You can claim the depreciation on capital items such as a computer, office furniture and fittings, or shelving, used for business purposes in your home.

Telephone costs

You may claim a deduction for telephone rental if you run your business or organisation from your home. If your home is the centre of operations or management for the business, you may claim a deduction of 50% of the telephone rental. Identify those toll calls that are business-related. It is a good idea to use a highlighter on your phone bill to mark the business toll calls. If you have a separate commercial and domestic line rental, you can claim the full cost of the commercial line for both income tax and GST, but none of the domestic rental. If you make any private calls on the business line, you will have to make an adjustment for them.

Claiming home internet used for business purposes

Home internet costs will generally be a private expense of the household and not claimable. However if you run your business from home you may sometimes need to use the internet as part of carrying on your business. 

The portion of the expenditure relating to business usage may be claimable as a business expense. You can't claim any part of the internet expense relating to the household's private usage. 

How the proportion of business-related internet expense is calculated will depend on the type of internet plan you have. You must calculate the business proportion you claim by a method that ensures a fair and reasonable result. You must also meet normal record keeping requirements.

 


Date published: 18 Mar 2014

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