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Many people who run a small business use an area in the family home for work purposes. You do not have to have an area specifically set aside for the business. If you are doing this, you can make a claim for the area set aside so long as you keep a full record of all expenses you wish to claim.
If there isn't a separate area for the business the apportionment will need to take into account criteria such as the amount of time spent on income-earning activities and the area used at home.
No deduction is permitted for any private or domestic expenditure.
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 used 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.
In a house of 100 square metres Mereana uses 10 square metres as an office (10% of the total floor area). GST-inclusive house expenses for the full year were:
If Mereana is not registered for GST the amount to claim is 10% of the total costs including GST:
If Mereana is registered for GST the amount to claim is 10% of the total costs excluding GST:
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.
The business floor area is 10%.
The amount to claim is:
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 and you are charged for them, you will have to make an adjustment for them.
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.
For the 2017-18 and later income years, you can use the square metre rate option to calculate the expenses you can claim for using your home as an office. This method will use rates that we will determine based on the average cost of utilities per square metre of housing, but excluding mortgage interest, rates and rent. You will be able to claim a portion of the mortgage interest, rates and rental costs that you paid during the year based on the percentage of floor area being used for business purposes.
The equation you can use is:
|(a x b)||+||(c x d)|
a is the total amount of actual mortgage interest, rates, and rent (as applicable) you have paid during the year
b is the business proportion, determined by dividing the business floor area in square metres by the total floor area of the buildings (ie 10m2 office ÷ 100m2 buildings = 0.10)
c is the total square metres of any separately identifiable parts of your home being used primarily for business (ie 10m2)
d is the rate per square metre that is published by Inland Revenue, based on the average cost of utilities per square metre of housing, but excluding mortgage interest, rates or rent.
If you use this option, you won't be able to claim any further deductions for the use of your home.
The square metre rate for the 2017 - 2018 income year for utilities is $41.10 per square metre.