If you’re a construction business owner and use part of your family home for work, you can make a claim for this as a business expense. In order to claim the expenses, there must be a connection between the use of your home 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 your construction business.
If your construction business is a company and does not pay anything towards the home office expenses, it cannot claim an expense.
However, if your construction company reimburses you for the use of your home, then it may be able to claim an expense. 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.
If part of your home is completely set aside for business use you just need to consider the floor area. If it is not completely set aside, you also need to consider the amount of time that part of your home is used for income-earning activities.
If you are registered for GST, the business expenses you claim will not include GST, when this applies. If you are not registered for GST, these expenses will include GST.
If you have a mortgage you can claim the same proportion of your mortgage interest (but not the principal) paid during the year. There is no GST involved in this.
For GST, you can claim a portion or percentage of the GST on the expenses.
Like you do for any other construction business expenses you are claiming, you need to keep invoices and other records for these expenses.
You cannot claim depreciation on your home. Depreciation could be claimed before 1 April 2011 – if you did this, when you sell your home or stop using it for business purposes you will need to include the depreciation recovered in your tax return.
You can claim depreciation on capital items such as a computer, office furniture and fittings used for business purposes in your home.
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. Business-related toll calls are 100% deductible.
If you have a separate business line, you can claim the full cost of this for both income tax and GST. If you make any private calls on the business line and are charged for these, you will have to make an adjustment.
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.
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.
Instead of working out how much of your household expenses will be claimed by your business, you can use the square metre rate option. This uses a rate that we set each year based on the average cost of utilities per square metre of housing for the average New Zealand household.
This rate does not include premises costs of mortgage interest, rates or rent. You can also claim a portion of these based on the percentage of floor area used for the business.
The equation for the square metre rate option is: (a x b) +(c x d)
Where:
a. is the total amount of mortgage interest, rates and rent you have paid during the year
b. is the area calculated by c divided by the total floor area of your home
c. is the total area (in square metres) of your home that is separately identifiable and used primarily for the business
d. is the square metre rate that is published by Inland Revenue.
Square metre rates for each tax year
For the tax year that you're claiming business expenses for, make sure you're using the correct square metre rate.
Tax year
2017-2018
$41.10 per square metre
2018-2019
$41.70 per square metre
2019-2020
$42.75 per square metre
2020-2021
$44.75 per square metre
2021-2022
$47.85 per square metre
This information is sourced from the IRD website. For more information, check out www.ird.govt.nz
