Using your home for the business

Claiming business expenses

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.

The proportion claimed as a tax deduction should reflect the area of the house used for the home office.

You can determine the apportionment based on the floor space area used for the office, divided by the total area of the house.

For example, if the office is 20 sqm and the house is 200 sqm, then the percentage you would use is 10%. That means 10% of the total costs of the house can be used as an expense of the business.

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.

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.

Other costs that may be claimed

  • electricity
  • gas
  • Insurance (house and content)
  • rates
  • rent (if you do not own your home)
  • repairs and maintenance
  • security/alarm system monitoring
  • the interest costs on your mortgage (but not the principal repayments)

(Source: IRD website)