How to claim Home Office Expenses

Yesterday, we talked about filing your tax returns online through My IR – today we’re going to talk about a most common oversight when filing tax returns: Home office Expenses!

What is a Home Office Expense?

Let’s say that you work from home, or do some of your work from home. I know that this is the case for many self-employed individuals, freelancers and side-hustlers. You can claim a proportion of your household expenses as part of your business expense.

In other words, you can effectively reduce the amount of tax payable by simply claiming a portion of your regular household expenses!

Pretty cool eh?

But let’s not go willy-nilly claiming all our household expenses. So, no, you can’t claim that $4,000 coffee machine you bought for the kitchen as a home office expense. What you can claim as a home office expense are the following:

1. Rent paid on the house/board (if you are renting)
2. Interest on the mortgage payments for the house (if you are paying a mortgage – very important: you can ONLY claim the interest portion, not the principal portion)
3. House and/or content insurance
4. Repairs and maintenance on the house (painting, plumbing, carpet cleaning etc.)
5. Rates paid on the house (if you own the property)
6. Electricity bills
7. Internet and telephone bills (you can claim up to 50% of this)

Straight up – you CANNOT claim 100% of your household expenses as home office expenses. You can only claim a portion of it. So how do we go about calculating this portion? Easy! We need to figure out the home office percentage that you are using. To get this we simply use the following formula:

Home office % = Size of home office (sqm)/Total size of property (sqm) X 100

Your size of home office is the size of the space at home that you use for work purposes. For most self-employed individuals this will be between 10 to 20 sqm – but you can grab a tape measure and start measuring if you want more accuracy. Your total size of the property is well, the size of your property. If you have trouble figuring this out (or don’t want to tape measure your entire house) you can check out this cool website which allows you to estimate your property area by selecting it on a map. If you are only renting a room in the property, then you should replace the total size of the property in the equation with the total size of your room. 

Wait Sam, what if I rent a room and I use the WHOLE room as my home office? Can I claim 100% of my rent, power and internet?

Uhhh, hold on there – you don’t use your bed and wardrobe for work right? In that case, you might just want to limit the size of your home office to your work/computer desk. Best not to put in 100% claims – that is a sure fire way to attract the IRD’s attention.

Ok! So now that you’ve gotten your home office percentage you can start using that percentage to claim a portion of your household expenses outlined above to include in your tax return! (If you are registered for GST – you can claim GST on these expenses as well, except for rent and interest on mortgage). It must be noted that for telephone and internet bills – you can claim up to 50% of the bill, regardless of the home office percentage. Yay!

The easiest way to calculate your home office expense is to put it into a spreadsheet like so:

Ta-Da!

Easy right? Simply fill in your details in the grey boxes and you can then calculate how much you can claim for home office expenses! Once you have this figure – you can use it to reduce your net income figure – which will give you a lower net income figure, or even a net loss. You also should be plonking that home office expense under the ‘home office expense’ box in the IR 3B Business Income form when filling out the self-employed return.

It is always a good idea to have the source documents (receipts/invoices etc) that prove you have paid for those house expenses handy – in case IRD does a random audit and asks you for it.

Looking for the template download?

Download the Home Office No GST template here (if you are not registered for GST)

Download the Home Office GST template here (if you are registered for GST)

Have fun with the template and happy tax return filing!

If you want more detailed info – check out the IRD’s website on Home Offices.