Paul Martin Chartered Accountant Ltd :: Accounting, Taxation and Business Advisory :: Auckland, New Zealand
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Can my dog be claimed as a security expense and other curly home office questions…..

Paul Martin • Aug 10, 2018

It didn't stop at the dog - the same (ex) client tried to convince us that his daughter's pony was required to entertain his clients' children. Other clients have asked to claim other day to day household items - the pot plant at the front door, Sky television, the weekly cleaner and even a new outfit for an important meeting.

Unfortunately for these clients, none of these items were able to be claimed as home office expenses. The rules are very clear regarding what you can and can't claim. However, making a home office claim if you conduct some or all of your business from home is still an effective and legitimate way to reduce your tax liability.

When and how can I claim home office expenses?

  • When you run a small business or income generating activities and use an area in the family home for work purposes
  • You do not have to have an area specifically set aside for example a dedicated office – you can still estimate the portion the house used
  • Use the work area measurements or estimate compared to the total floor area of the house, then apply this percentage to the total claimable house expenses.

Which expenses can be included in a home office claim?

You can claim a portion of rates (this includes water), insurance, power and mortgage interest/rent based on the percentage calculated above.

You may claim a 50% deduction for telephone rental if you actually run your business from your home, as well as business-related toll calls. If you have a separate commercial and domestic line rental, you can claim the full cost of the commercial line for both income tax and GST, but none of the domestic rental. If you make any private calls on the business line and you are charged for them, you will have to make an adjustment for them.

Home internet costs will generally be a private expense of the household and not claimable. However, if you run your business from home you are likely to use the internet as part of carrying on your business. This portion may be claimable as a business expense. How this portion is claimed depends on the type of internet plan you have.

What records do I need to keep?

The responsibility for keeping invoices and records for a home office is the same as for any other business expenses you are claiming. Often clients tell us to claim their home office as per the previous year, without providing any documentation. This is not the best approach for several reasons.

Firstly, amounts charged for rates, utilities and mortgage interest or rent do change each year, often up. Not providing current year expenses means you are likely to be missing out on some of your home office claim and paying more tax than you need to.

Secondly, home office expenses are really no different to any other expenses and you will need proof should the IRD ask questions and request a full record of the expenses being claimed.

New square metre rate option

A new method for calculating the expenses you can claim for using your home as an office has been introduced by the IRD for the year ended 31 March 2018. This method uses rates set annually by the IRD based on the average cost of utilities per square metre of housing, but excluding mortgage interest, rates and rent.

The square metre rate for utilities for the 2017 - 2018 income year is $41.10 per square metre.

You can then claim a portion of the mortgage interest, rates and rental costs as well by the usual method - the percentage or estimate of floor area being used for business purposes.

For more information on how to make the most of your home office claim, please contact us to discuss further.

 

How the new Government and coalition agreements might affect owners of residential rental properties

By Paul Martin • 04 Dec, 2023
There were some key takeouts of interest to many of our clients from the recently signed coalition agreements between National, ACT and New Zealand First and the formation of the new Government. In particular there are a number of policies which will likely benefit landlord clients who own residential rentals. I have summarised some of these below. 1. Return of Interest deductibility for residential rental properties Interest deductibility for residential rental property owners will return. It will be phased back in over three tax years: • 2023/24 tax year: 60% of interest cost will be deductible. • 2024/25 tax year: 80% of interest cost will be deductible. • 2025/26 tax year: 100% of interest cost will be deductible. 2. Reduction in bright-line period National signalled in their pre-election campaign that the bright-line period for residential rental property sales would reduce from 10-years to 2-years. While the exact implementation of this policy is not yet known, it is good news on the horizon for residential property investors. 3. Reinstatement of 90-day no-cause termination notices The new government will reinstate 90-day no-cause tenancy termination notices. This will avoid many unnecessary disputes in the Tenancy Tribunal and gives landlords more confidence in letting to possibly “marginal tenants". Many landlords have avoided what they considered to be risky tenants because eviction for anti-social behaviour was so difficult. With this reinstatement, landlords might be more inclined to give a marginal tenant a chance because they know that if the tenant misbehaves, they won’t be stuck with them. If you would like more information on how these changes might affect your personal circumstances, please feel free to contact us to discuss further.

How does provisional tax work, especially in an economic downturn?

By Paul Martin • 18 Jul, 2023
If you had to pay tax of more than $5,000 in your last income tax return, you may have to pay provisional tax for the following year. Provisional tax is like making progress payments on next year's income tax.

How to handle inflation as a sole trader

By Paul Martin • 18 Jul, 2023
Sole traders have had an especially difficult few years as inflation surges. We have got three tips to help lighten the load for your sole trader business. 
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