How to Claim Home Office Expenses

 A common myth is that you must have a 100% dedicated, separate spare room to make a home office claim. That is not the case.

• Dedicated Spaces: If you have a separate spare bedroom set up as a permanent office, or a specific area of a garage or workshop used exclusively to store business stock or tools, you simply calculate your claim based on that floor area.

• Shared Spaces: If you do your books at the dining table or run your business from a corner of the family lounge, you can absolutely still claim a portion of your costs. You just have to calculate your claim based on both the floor area you occupy and the actual amount of time you spend using it for business operations.

Using the IRD square metre rate is the most straightforward method when calculating home office expenses as a business owner. It uses a flat rate set by IRD each year based on the average cost of utilities per square metre of housing for New Zealand households. 

However, home office expenses such as mortgage interest, council rates, or rental payments are not covered in this flat rate. You will need to calculate those home office expenses additionally based on the percentage of floor area used for your business. For 31/03/2025, the flat utility rate is set at $55.60 per square metre. When using this method, you are not required to keep individual records of your utility bills. This rate is updated please refer to IRD for the updated rate.

Example Setup:

• Your total house area is 200 square metres.
• You have a dedicated spare room used exclusively as your business office which is 15 square metres.
• You also use a specific, permanent section of your garage to store business tools and stock which is 25 square metres.
• Total area for business use is: 15 + 25 = 40 square metres.
• Percentage of the home used for business: 40 divided by 200 square metres multiplied by 100 = 20%.
• You pay $3,000 in council rates and $22,000 in mortgage interest every year (total of $25,000).

In this case, a portion of 20% can be claimed against your rates and mortgage interest paid yearly.

The Calculation:

• Utility Flat Rate Portion: 40 square metres multiplied by $55.60 = $2,224.
• Premises Cost Portion: $25,000 multiplied by 20% = $5,000.
• Total Home Office Claim: $2,224 + $5,000 = $7,224.

You can choose to use the actual cost method if the square metre rate method does not accurately reflect your home office expenses. This means you will need to calculate each item individually and keep records of any costs you intend to claim.

Let us use the same example setup, keeping the 20% business use space, the $3,000 paid for rates, and the $22,000 for mortgage interest.

In addition, you want to add your actual annual utility costs:

• Internet: $1,200 per year
• Phone: $600 per year
• Electricity and Gas: $3,200 per year
• Total utility costs: $5,000 per year

In this case, 20% of every single household expense can be claimed as relevant to the business.

The Calculation:

• Total Household Costs: $3,000 rates + $22,000 interest + $5,000 utilities = $30,000.
• Total Home Office Claim: $30,000 multiplied by 20% = $6,000.

There is a handy sheet at the bottom of this page you can use 

 If you are GST registered, you can claim the GST portion on your home office expenses. However, you must separate your expenses because there is no GST on mortgage interest or residential rent payments.

Additionally, if you choose to use the IRD square metre flat rate method for your utilities, you cannot claim separate GST on those power and internet costs through your regular GST returns.

Legitimate home office spaces rarely exceed 25% of a total residential floor plan. Because this is an area where errors frequently occur, IRD monitors these deductions closely.

I review your shareholder accounts and business transactions at annual return time unless you are a monthly fee client, so ensuring your day to day records are clean is something you need to manage throughout the year.