Many people, who run a small business, use an area set aside in their family home for work purposes. If you are doing this, you can make a claim for the area set aside, so long as (a) it is used principally for business (such as an office or storage area) and (b) you keep a full record of all expenses that 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 claim. You can claim a portion of the household expenses, such as the Council rates, insurance, power and mortgage interest (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.
In a house of 100 square metres, Mereana (not a real name), sets aside 10 square metres as an office (10% of the total floor area).
Her GST-inclusive house expenses for the full year were:
Insurance (house) $ 600
Total (including GST) $3500
Total (excluding GST) $3043
If Mereana is not registered for GST, she could claim $350, which is 10% of the total costs of $3500, including GST.
If she is registered for GST, she could claim $304, which is 10% of the total costs of $3043, excluding GST.
Mereana can also claim 10% of the GST content of these items in her GST return.
She can claim this either annually or on a period-by-period basis.
You may also claim a proportion of the mortgage interest (not principal) paid during the year. Use the same method of the business floor area percentage to work out what to claim.
If you are in business, you may like to attend one of our free tax seminars or workshops held in various parts of the country.
Visit www.ird.govt.nz and enter the search term ‘Seminars.’
Abdul Rafik is Inland Revenue’s Community Relationships Advisor based in Auckland. He will answer your queries emailed to firstname.lastname@example.org