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.

How to Calculate Your Business Percentage for Shared Spaces:If you use a shared area like a dining table, you cannot claim that space for the whole day. You multiply your area percentage by your time percentage to get your final claim figure.

1. Work Out the Area Percentage: If your house is 200 square metres and your workspace at the table takes up 10 square metres, that is 5% of your home (10 divided by 200 multiplied by 100).
2. Work Out the Time Percentage: A standard week has 168 hours. If you work at that table for 15 hours a week, that is 9% of the time (15 divided by 168 multiplied by 100).
3. Multiply Area by Time: 5% area multiplied by 9% time gives you a final business use percentage of 0.45%.

The Calculation:Let us apply that 0.45% shared space percentage to the same example house costs, adding actual annual utility bills:

• Council rates and mortgage interest: $25,000
• Internet, phone, electricity, and gas bills: $5,000
• Total Household Costs: $30,000.
• Total Home Office Claim: $30,000 multiplied by 0.45% = $135.

A permanent, dedicated workspace allows you to skip the time calculation entirely and claim the full area percentage, which is why it yields a higher deduction.

 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.