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Business use of your Private Home & Sheds

If you’re a business owner and use part of your family home for work, you can make a claim for this as a business expense, but of course there must be a connection between the use of your home or shed and the business income being generated.


You can claim a portion of your household expenses, such as rates, insurance, power and mortgage interest. The portion you can claim relates to the area of your home that you use for business.


If your business is a company, the company would need to reimburse you for the use of your home in order to be able to claim an expense, i.e. it must have incurred the actual cost. So if you want to make a claim, this should be calculated and paid before year end.


The company needs to be able to prove that there is a link between the money paid for the use of your home and the income the company makes. It also needs to keep accurate records that show how and when it paid for the use of your home, the amounts paid, and how it arrived at the amount to pay.



If you are a shareholder-employee/employee and the amount paid is a fair reimbursement for the use of your home, then it is exempt income and you do not need to pay income tax on the amount.


Calculation Methods

There are two methods permitted by IR.


Option 1 - Square Metre Rate

Option 2 - Actual Costs


What should you use? It all come down to how much effort you want to put in. Under the actual costs method you need to collect information for your accountant, so they can calculate your entitlement. So, if you are time poor, or just want to keep things simple then the Square Metre Rate will be the best option for you. If you want to maximise your claim you may want your accountant to calculate both.


The Square Metre Rate

The square metre rate uses the rate that is set by IR each year based on the average cost of utilities per square metre of housing for the average NZ household. It does not include the costs of mortgage interest, rates or rent, so you will need to give us this information.


Information to collect:

  1. Spatial Information

    1. Total area of the building utilised

    2. Total business area of the building utilised

    3. Total area of dual-purpose or common spaces

    4. For dual purpose or common spaces, you also need to consider the amount of time that part of your home is used for income-earning activities

      1. For example, if you have an open-plan kitchen/lounge/dining area and you work from home 100% of the time, then during the day, it is likely to be considered business space and after hours private space—so would a 50/50 split be a reasonable basis for utilising this space?

  2. Record of costs

    1. Rates

    2. Insurance

    3. Light/Heat/Power/Gas

    4. Mortgage Interest (not principal)

    5. Rent

    6. Internet costs

      1. If you run your business from home and have an internet plan for both business and private use, you can claim part of this as a business expense.

      2. You can decide how to work out the business proportion, but it needs to give a fair and reasonable result. You must also meet normal record-keeping requirements.

    7. Telephone costs

      1. Private Land Line - If you run your business from home you can claim a deduction of 50% of the rental of a telephone landline if this is also your private line.

      2. Business Land Line—If you have a separate business line, you can claim the full cost of this for both income tax and GST. However, if you make any private calls on the business line and are charged for these, you will have to make an adjustment.

      3. Business-related toll calls are 100% deductible.

 

 

Home

Shed

Property Address

 

 

Total Area

 

 

100% Business Space - Area

 

 

Common Space (Business/Private) - Area

 

 

Common Space (Business/Private) – Time Utilisation

 

 

Costs I incur for these spaces

 

 

Rates

 

 

Mortgage Interest

 

 

Rent

 

 

Internet

 

 

Telephone

 

 

Light/Heat/Power/Gas

 

 

Insurance

 

 

Any Others?

 

 

 

 

 

 

 Disclaimer

This article is for informational purposes only and should not replace specific tax advice.  For personalised advice please contact Justine Kennard, Business Studio. (March 2022)

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