PONSONBY PROFESSIONALS

PONSONBY PROFESSIONALS LOGAN GRANGER: HOME OFFICE

A home office has long been a vital component for many small business owners, whether the business is run full-time from home, or a home office which provides a space to work from when you’re not ‘on-site’ – usually at all hours of the day and night.

The pandemic threw home offices into the spotlight as employed people across the country had to quickly shift to working from home and many small business owners upped their hours working from within their own four walls.

There’s been little change in what you can claim in regards to a home office, but what the past couple of years probably has done is raise awareness of claims that can be made for having a home office. It’s one of the few things you get as a small business owner that you don’t get as an employed worker.

Interestingly, your ‘home office’ doesn’t have to be a dedicated space – if you work from your dining table you can still claim home office expenses, but with the added complication of calculating the time for which it is used as a work space.

There’s a really good precedent for this, as a lawyer many years ago was working from his kitchen bench and had his claim turned down by the Inland Revenue (IR). He argued the case and won, and as a consequence you can use a kitchen bench or a dining table on the basis that the area is being used as an office.

Here’s a quick guide to what can be claimed and how claims are calculated.

· Claim tax deductions for the costs of running a home office.

· The percentage you can claim is based on the percentage of your home that is used as an office.

· For homeowners with a mortgage, a percentage of mortgage interest can be claimed too.

· You can include business storage space in the home as part of your home office measurement.

Step one: Calculate your home office size The first step in calculating home office deductions is to work out the proportion of the property that’s used for the business, including any work, office and storage space.

Work-related space / total space = work-related proportion For example, if your home is 150sq.m, and you use 30sq.m for your business, your calculation would be: 30/150 = 0.2 (or 20%)

Step two: Calculate your deduction You can potentially claim a proportion of the mortgage interest you’ve paid during the tax year, rates and some utilities – but not depreciation.

There are a couple of ways to calculate what you can deduct. You can use the proportion of floor space you have already calculated to work out the proportion of the mortgage interest, rates and rent you can claim, then add a proportion of the phone and internet.

In this method, you must keep records and be reasonable. You can claim 50 per cent back for your home phone line if you use this line for business too, while you can claim a ‘clear and reasonable’ business proportion for cell phone and internet usage.

Using the square metre rate If you prefer not to keep records of all costs and justify your internet use, IR provides a rate per square metre based on average utility costs for New Zealand households. The rate for the 2021-22 tax year is $47.85 per square metre.

Your annual expense to claim is the IR rate multiplied by the area (in square metres) of the home that is used for business. However, the IR square metre rate does not include interest and rates or rent costs. You can claim interest, rates and rent on top of the IR rate using the percentage of area method. Equation for the square metre rate option is: (total amount of mortgage interest, rates and rent x workrelated proportion) + (total area used for business x square metre rate for the year)

For example, if your total property size is 150sq.m, you use 30sq.m or 20% for your business, and your total rent for the year is $31,200, the calculation using the 2021-22 tax year would have been: ($31,200 x 0.2) + (30 x 47.85) = $7,675.50

Whichever method you choose, keeping records of expenses along the way is hugely valuable when the time comes to lodge your claim.

As with many things in business, it’s important to do things thoroughly and well, and seek professional advice.

Disclaimer – While all care has been taken, Johnston Associates Chartered Accountants Ltd and its staff accept no liability for the content of this article; always see your professional advisor before taking any action that you are unsure about.

JOHNSTON ASSOCIATES, 14 St Marys Bay Road, T: 09 361 6701, www.jacal.co.nz

14 St Marys Bay Road, St Marys Bay