If you are a business owner and work from home, you may be able to claim a portion of your house costs as a business expense!
This article will let you know a bit about what expenses you can include in your home office claim along with how your home office claim is calculated.
Step One: Home Office Size
We first have to work out the size of your home office space, to know what portion of your home costs can be claimed! The spaces claimed must be solely used for business use.
The company needs to prove that there is a link between the money paid for the use of your home and the income the company makes. It also needs to keep accurate records that show how and when it paid for the use of your home, the amounts paid, and how it arrived at the amount to pay.
You may consider claiming space where you have an office or work from as part of your business. This may also include spaces used for storage of business assets (i.e. stock, tools, business vehicles, etc.).
This needs to be worked out in square metres.
Here’s an example of how you can calculate it:
You use the spare room as your office space; it’s a 3m x 4m room. You also use half of your garage for storing tools and your business vehicle - that’s 8m x 2.5m.
3 x 4 = 12sqm, plus 8 x 2.5 = 20sqm - therefore total square metres for business use is 32sqm
We also need to know the total square metres of your home, including garage and storage spaces.
Say the home is 200sqm all up, including garaging and storage space - 32 / 200 = 16% of the home is for business use.
Step Two:
Option One: add up your actual home costs
We then need to add up all the home costs to claim a portion of them.
Here’s a list of some of the costs we typically claim:
Rent or mortgage interest*
Electricity & Gas
Home and/or contents Insurance
Rates
Repairs or Maintenance Costs
Home Phone Costs
Internet Costs
Depreciation on capital items used for business purposes, i.e. office furniture & equipment
*it’s important that when working out mortgage interest, you exclude any principal loan repayments from this amount.
The above costs can be added up, and your home office percentage can be applied to these costs.
Step Two:
Option Two: use the IRD square metre rate
Instead of working out how much of your household expenses will be claimed by your business, you can use the square metre rate option. The IRD sets a rate each year that can be used for this calculation.
The rate does not include mortgage interest, rates or rent, so you can also claim a portion of these costs based on the floor area used for your business.
The equation for the square metre rate option is: (a x b) + (c x d)
Where:
a is the total amount of mortgage interest and rates or rent you have paid during the year
b is the percentage calculated by taking the area of your home used for business divided by the total floor area of your home
c is the total area (in square metres) of your home that is separately identifiable and used primarily for the business
d is the square metre rate that is published by Inland Revenue.
For the 2023/2024 year, the IRD square metre rate is $53.10. These rates are usually released by IRD within a couple of months of each financial year-end.
GST:
If you are registered for GST, you can claim the portion of GST on the expenses (excluding mortgage interest and rent, which are exempt for GST purposes) as calculated in step one above.
Disclaimer: This is general information only. Please reach out to Prosper Business for specific advice to your situation.
