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Using your home for the business


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, mortgage interest and depreciation (if you own the house). 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.

Example

In a house of 100 square metres John sets aside 10 square metres as an office (10% of the total floor area). GST-inclusive house expenses for the full year were:

Rates

$1,200.00

Insurance (house)

$ 400.00

Power

$ 960.00

Total costs (including GST)

$2,560.00

Divide total costs by nine to get the GST content

$ 284.44

Total costs (excluding GST)

$2,275.56

If John is not registered for GST the amount to claim is 10% of the total costs including GST : $2,560x 10% = $256

If John is registered for GST the amount to claim is 10% of the total costs excluding GST: $2,275.56 x 10% = $227.56.  John can also claim 10% of the GST content of these items in his GST return, he can claim this either annually or on a period-by-period basis.

Claims on mortgage interest and household depreciation

You may also claim a proportion of the mortgage interest (not principal) paid during the year, and depreciation on the house itself. There is no GST involved in these two items, so it is easier to work them out separately. Use the same method of the business floor area percentage to work out what to claim.

Example

The business floor area is 10%.

House cost (not including land)

$100,000

Depreciation @ 3%

$3,000

Add mortgage interest paid(not principal repayments)

$2,340

$5,340

The amount to claim is:

$5,340 x 10% = $534

Note

  • If you claim depreciation on your home, you must include the depreciation recovered in your tax return when you cease using your home for business purposes, or when you sell your home.
  • You can claim the depreciation on capital items such as a computer, office furniture and fittings, or shelving, used for business purposes in your home.

Condition of use: The above material has been extracted from Inland Revenue sources and is protected by Crown Copyright.

 

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