Claiming expenses when your home is your office

More and more of us are now choosing to work for ourselves and use our home as our office. We are loving the work life balance, the flexibility to spend time with family and young ones and still earning an income. Working from home still incurs costs like using internet for your business emails, using mobile phone to ring your clients, turning a bedroom into an office and so on. So, how much of these expenses can you claim?

Expenses you can claim

If you are using your home as your office you can claim a proportion of your home expenses. For example, when your home is 100 m2 and your working space is 10 m2 -10% of the total area- you can claim 10% of the expenses. This 10% is easy to calculate when the small room or a nook in the house is the only area you use for work.

  • What expenses can I claim?
  • Rent
  • Mortgage interest
  • Insurance
  • Rates
  • Power
  • Telephone & Internet
  • Repairs and maintenance to the home office area

Not a separate office area? You can still claim

What if your desk is in your bedroom and you also work at your dining table from time to time? How do you work out that percentage?

This can be bit tricky. In cases like this IRD will consider criteria such as the amount of time spent on income-earning activities and the area used at home.

One way to calculate the percentage is to measure the dining area, and the space your desk takes up in your bedroom. This will give you a total percentage of the office area used and available in the house for work. The dining area is also used for other activities which are not work related, whereas the desk in the bedroom is set up for your work only. In which case you can claim 100% of the office area in the bedroom and you will need to work out what percentage of your work time you use the dining table for work.

EXAMPLE

Simona has her own business and works 20 hours per week. In her house of 100m2, she has set up a nook in the guest room with a work desk and chair. She also uses her dining table from time to time. The nook is purely for business work whereas the dining table is also for dinner time and entertaining. The nook area works out to be 10m2 and the dining area is 20m2.

Calculation for the dining area
She keeps a time log for two weeks and she learned that she uses the dining table for five hours per week for work. So, Simona spends 25% of her work time at the dining table (5 hours/20 hours).

The dining area work out to be 20% of the total area (20 m2/100 m2). For the dining area Simona can claim 5% (25% time of 20% office area).

Calculation for the nook
The nook is only used for business related work, so she doesn’t have to keep a log. The nook area is 10m2 which is 10% of the whole house.

Total percentage of home expenses she can claim
Simona can claim 15% of her home expenses. 5% for the dining area and 10% for the nook in her guestroom.

Claiming GST on home office expenses

If you’re GST registered, the GST content on home office expenses can be claimed, such as insurance, power and phone. Mortgage interest and residential rent don’t include GST. To get the benefit of the home office deduction, claim GST on your home office in your GST return, whether its monthly, two monthly or six monthly instead of waiting for the year end.

Can I claim my laptop or office furniture used for business purposes?

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. IRD have published depreciation rate for capital items on their website. We will cover this in more detail in our next blog. Join our Facebook page to be notified about this blog. Meantime you can go onto IRD website for information.

Enter your estimated expense claims in your accounting programme at the start of the year

It’s good to enter your estimated expenses in your accounting software (such as Xero) at the start of the tax year instead of at the end. Why? From TaxBuddy we believe it’s good practice to put money aside each month for your tax bill which comes in at the end of the financial year. Instead of just guessing an amount, you want this amount to be as accurate as possible; to avoid being short or to support cashflow throughout the year.

The more detail you enter, the more accurate the calculation will be of how much money to put aside. The estimation of home expenses can be quite precise. You can now work out more precisely how much money to put aside for income tax. And, if you don’t want to go down the spreadsheet track for this calculation, the TaxBuddy App has been specifically designed for this purpose; to calculate how much to put aside each month, based on real time data from your accounting software. So, you never put aside too much or too little.

So for now, get your measuring tape out, collect all your invoices for phone, internet, rates etc, and see how much you can claim for your home expenses.

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2018-02-22T01:12:17+00:00 February 22nd, 2018|0 Comments