How to Claim Home Office Expenses

A common myth is that to make a home office claim, you must have a 100% dedicated, separate spare room. 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 solely used to store business stock or tools, you can calculate your claim based on that floor area using the IRD square metre rate. 

Shared Spaces: If you do your books at the dining table or run your business from a corner of the family lounge, you can still claim a portion of your costs. You'll need to apply the actual cost method by calculating your claim based on both the floor area you occupy and the actual amount of time you spend using that space for business operations.

Using the IRD square metre rate is the most straightforward method for calculating home office expenses as a business owner. This method employs a flat rate determined by the IRD each year, based on the average cost of utilities per square metre of housing for households in New Zealand.

However, it's important to note that home office expenses, such as mortgage interest, council rates, or rental payments, are not included in this flat rate. You will need to calculate those home office expenses separately, using the actual cost method based on the percentage of your home's floor area dedicated to business use. For the tax year ending 31/03/2025, the flat utility rate is set at $55.60 per square metre. When employing the IRD square metre rate, individual records of your utility bills are not required. Please check with IRD for any updates to this rate.

Example Setup:

Your total house area is 200 square metres. You have a dedicated spare room used exclusively as your business office, measuring 15 square metres. Additionally, you use a specific, permanent section of your garage to store business tools and stock, which is 25 square metres. This results in a total area for business use of 15 + 25 = 40 square metres. To determine the percentage of your home used for business, calculate: 40 divided by 200 square metres and multiply by 100, equating to 20%. You incur $3,000 in council rates and $22,000 in mortgage interest annually (bringing the total to $25,000).

In this scenario, a portion of 20% can be claimed against your rates and mortgage interest paid each year.

The Calculation:

Utility Flat Rate Portion: 40 square metres multiplied by $55.60 equals $2,224.

Premises Cost Portion: $25,000 multiplied by 20% equals $5,000.

Total Home Office Claim: $2,224 plus $5,000 equals $7,224.

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

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 entire day. To determine your final home office claim, multiply your area percentage by your time percentage.

Work Out the Area Percentage: If your house is 200 square metres and your workspace at the table occupies 10 square metres, that equals 5% of your home (10 divided by 200 multiplied by 100). Work Out the Time Percentage: A standard week comprises 168 hours. If you work at that table for 15 hours a week, that amounts to 9% of the time (15 divided by 168 multiplied by 100). Multiply Area by Time: Thus, 5% area multiplied by 9% time yields a final business use percentage of 0.45%.

The Calculation: Now, let’s apply that 0.45% shared space percentage to the same example house costs, incorporating 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.

Having a permanent, dedicated workspace allows you to skip the time calculation altogether and claim the full area percentage, resulting in a potentially higher deduction.

If you are GST registered, you can make a home office claim that includes the GST portion on your home office expenses. However, it's important to separate your expenses, as there is no GST on mortgage interest or residential rent payments. Furthermore, if you decide to use the IRD square metre rate method for your utilities, you won’t be able to 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, which is crucial for accurately supporting your home office claim. The IRD monitors these deductions closely, especially since errors frequently occur. 

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 and consistent with the actual cost method for calculating deductions is something you need to manage throughout the year, particularly regarding the IRD square metre rate.