Working from home has many benefits: no commute, a fridge full of food nearby, and the chance to hang with your pets all day!
Besides those perks, there are financial benefits, too. If you have a home office, you can claim a number of expenses at tax time.
But exactly what can you claim, and what’s not allowed? Sometimes it can be really hard to know.
Luckily, we are the experts and have got you covered! We’ve gathered all the info you need to help you get organised and save some money. Let’s get stuck in!
Which Home Office Costs Can You Claim?
It’s All About The Space
Expenses that are exclusively for the business can be claimed at 100 %. But many of your home office costs – such as your power bill and rates – won’t be covered in full, as those resources also cover your personal needs. However, you can claim back for a percentage of them.
The percentage varies depending on how much of your home space is dedicated to the business.
For example, if your home is 140 square metres and you use 14 square metres for work, that amounts to 10% of the total area. This means you can claim 10% of expenses.
We’ll use this example throughout this blog – so any time you see 10% it’s based on this calculation.
What If I Don’t Have An Office?
Laptops make it easy to work from just about anywhere.
If you don’t have a separate office area and choose to work from your kitchen bench or a small desk in the spare room, you can still claim back for a portion of your expenses as above. It just means that the space you use in your house (and therefore percentage you can claim) will be considerably lower.
Phone, Internet And Power Bills
If you have a separate landline for your business phone or a dedicated mobile phone, you can claim 100%.
If you use your phone and internet for personal and business purposes, you can claim 50%. Business-related toll calls are 100% deductible.
You can claim 10% of power costs (going from the example given above), or more if you can prove you use more for your business.
Rates, Insurance, Mortgage Interest And Rent
Again, it’s all about the percentage. In our example, you can claim 10% of the interest on your mortgage payments or your total rent.
Important note: you can only claim interest on your mortgage payments, not principle repayments.
Vehicle Expenses
If you have a company vehicle, then all costs associated with it can be run through your business. But you may be required to pay Fringe Benefit Tax (FBT) or as a close company apportion the vehicle costs between business and private use using a shareholder contribution.
Even if you don’t have a company vehicle, you can claim some of the cost of using your personal vehicle for work related travel. Track your mileage with a logbook for every work-related travel expense (such as client meetings, work onsite, call outs etc.). You are able to claim mileage for all of these outings.
Equipment And Assets
Any assets you buy for your business, such as computers, tools, or machinery, can be claimed if they are used in your business. These are classified as capital expenses. Bear in mind that anything that costs you more than $1,000 must be depreciated. Your bookkeeper or accountant can help you work this out.
Office Supplies
Any office supplies that you use in your business are considered a business expense. So, you can claim 100% of office supplies, such as paper and pens. For office furniture under $1,000, you can claim 100%.
Food And Drink
You can claim for food and drink only if it’s classed as “entertaining for work.” For example, if you are having coffee with a client, you can claim 50%, but drinking coffee alone your home office or your weekly grocery shop doesn’t make the cut!
Miscellaneous
There are a number of other miscellaneous costs that you can claim, such as:
Security alarm bill 10%
Toilet paper and hand soap 10%
Professional membership fees 100%
Magazine subscriptions (related to your industry) 100%
Lightbulbs 10%
What You Can’t Claim
We commonly see these things on expense lists, but you aren’t actually allowed to claim for them. They are:
- Personal food and drink
- Television or entertainment streaming services
- Groceries
- Non-office furniture
A Note On GST
If your business is GST registered, you can claim the GST on home office expenses when they are paid (in each GST return period) or at the end of the financial year. If you are not GST registered, your income tax return will include GST on your expenses.
Tips For Claiming Home Office Costs
Understandably, the IRD can’t just take you at your word about your business spending! They do require proof of all your home office costs. This means invoices, receipts and other documented proof. You can also run a spreadsheet containing the portion of the costs you can claim.
Make life easier for yourself by staying on top of your record keeping throughout the year. Save all your online receipts, snap a photo of any physical copies, and store them in the same safe place digitally. Don’t forget that by law, you must keep your receipts and invoices for seven years.
How To Claim Home Office Costs
So, when is this magical time that you can claim all of these funds back? Tax time is when you claim your home office costs, when you file your annual tax return. You do this by deducting your expenses from your profits earned over the last financial year.
If you have done your bookkeeping and organised your records well, then half the battle is already won! All that’s left to do is to get your bookkeeper to check over everything before your records go to your accountant for processing your final return.
By following this process, you can tick all the boxes with the IRD and you can be sure you’ve claimed the right expenses.
Here at Admin Army, our team are experts in all things bookkeeping. We would love to help you stay on top of your financial obligations and ensure you are claiming the right home office costs. Get in touch with us today to find out more.