Woman working from home office: home office expense claims - which method is best for you?

If you have a home office or use an area in your home for work purposes, you now have two options for calculating the amount you can claim as a tax deduction:

Option 1: standard calculation

This method involves calculating the area in your home used for work as a percentage of your home's total floor area, and applying this percentage to the following household expenses:

  • house insurance

  • power

  • minor repairs and maintenance

  • water

  • mortgage interest and rates/ rent

As you would with your normal business expenses, you need to retain your invoices and keep appropriate records in order to claim for them.

If you are farming and live on the farm, you may be entitled to claim 20% of the household expenses listed above. We suggest you refer to our blog post from 3 May 2017: Farmhouse expense tax deductions - important changes taking effect this financial year.

More information on calculating home office expenses this way, including examples, can be found on this IRD webpage.

Option 2: square metre rate

From the 2018 financial year on you can choose instead to use Inland Revenue's square metre rate. This rate is based on the average cost of utilities per square metre of housing, but excluding rent or mortgage interest and rates.

This method is a simplified way of claiming tax deductions, and does not require you to calculate the business percentage of each invoice, nor keep invoices the way you would for the standard calculation method. You simply multiply your home office percentage by Inland Revenue's square metre rate.

You will still be able to claim a portion of the rates and mortgage interest/ rent paid during the year, and like the standard calculation method these values will be based on the percentage of total floor area your workspace occupies.

Square metre rate for 2017/2018

The Commissioner of Inland Revenue has set the square metre rate for the 2018 income year at $41.10 p/m2.

This rate will be reviewed by Inland Revenue each year.

Which method is best for me?

The square metre rate uses Statistics New Zealand information to calculate the average annual cost of utilities for the average-sized NZ household, divided by the sum of the average square metre size of a NZ home.

The key word here is 'average'; if you have a larger-than-average office, and/or higher-than-average utility charges you may be better using the standard calculation method.

As each taxpayer's situation is unique, we recommend you review your home office claim each year to determine which method will work best for you. Alternatively you can contact us if you would like some assistance on this matter.