Home Office Claim

A home office claim represents a tax deduction for the portion of your home that you use as an office. It’s calculated as a percentage of your total home expenditure.

You would pay for these costs regardless if you are in business or not, so why not make the most of an extra tax deduction to reduce the tax that you pay?

Most small and medium businesses use a portion of their home as an office. Make sure that you claim a deduction for these expenses.

This article reminds you about calculating the home office claim and the information needed.

Part 1

The first part is to calculate what percentage of your home you use for your business. You need to know the following:

1. The total area of your house in square meters

2. The area that you use as a business in square meters

These measurements will allow us to calculate the percentage of your home used as an office.

Example

Linda and Murray have a 200-square-meter house. They use one bedroom as a dedicated office (4.6m x 3.2m – 14.72m2). They also use half of the garage to store business tools, equipment and vehicles (20m2). This is a total area of 34.72 m2 or 17.36%.

Part 2

We will then use this business use percentage to calculate the portion of deductible expenses.

Deductible expenses include all house costs such as rates, insurance, mortgage interest or rent paid (only the interest portion, not the principal), power, internet, and other house costs if applicable (rubbish disposal, repairs and maintenance, etc.).

We don’t need all the source documents, such as invoices for each monthly power invoice. The total amount paid for each home category (rates, insurance, power, etc.) is sufficient. However, make sure you keep the invoices safe in case Inland Revenue requests them.

The total household expenditure (part 2) is multiplied by the business use percentage (part 1) to determine the home office claim.

Example

Linda and Murray pay costs for the financial year as follows:

1. Rates             $3,200

2. Insurance    $1,500

3. Mortgage interest or rent paid (interest only, not the principle on loans) $25,000

4. Power $2,600

5. Internet $1,200

6. Other house costs, if applicable (rubbish disposal, repairs and maintenance, etc.). n/a

Total $33,500 of total house expenses paid.

Part 3

The total expenses (part 2) are multipled by the business percentage (part 1).

Example

17.36% from part 1 multiplied by $33,500 of total expenditure from part 2 results in a home office claim of $5,815.60.

The home office claim in this example provides Murray and Linda with a tax saving of $1,919 (calculated at a 33% tax rate).