How to Claim Home Office Expenses — A Guide for Small Business and Sole Traders

Working from home has become increasingly popular in New Zealand, presenting opportunities to claim home office expenses against income tax and Goods and Services Tax (GST). This guide outlines the processes and requirements to maximise your tax deductions and GST credits.

Determine if you're eligible

To claim home office expenses in New Zealand, you must:

• Be self-employed or own a business, and
• Use part of your home for business purposes (such as a home office or storage area)

Note: In Australia, employees may also be eligible under certain circumstances to claim similar deductions — check with the ATO or your accountant.

Identify deductible expenses

Claimable expenses include:

• Mortgage interest or rent
• Utilities (electricity, gas, water)
• Repairs and maintenance
• Insurance premiums
• Depreciation on office furniture and equipment
• Phone and internet expenses

Claims must reflect only the proportion of expenses relating to your home office workspace, calculated by area ratio or by the percentage of time used for work purposes.

Claiming income tax deductions

Maintain accurate records including receipts and invoices for all home-related expenses. At the end of the financial year:

1. Complete an IR3 form (for self-employed individuals) or IR4 form (for companies)
2. List your deductible home office expenses in the "Expenses" section
3. Apply your business use percentage to calculate the claimable portion

Records must be retained for at least seven years for potential IRD audits.

It is always advisable to engage a professional accountant or bookkeeper to help you with this, especially in your first year of claiming.

Claiming GST credits

If you're GST-registered, you can also claim input tax credits on home office expenses:

1. Calculate the GST component of each claimable expense
2. Apply your business use percentage
3. Include these credits in your GST return (GST101A or GST103 forms, depending on your filing frequency)
4. Maintain receipts and invoices for seven years

Periodic adjustments

Significant changes to your home office setup during the year — such as renovations, moving to a larger home, or purchasing new equipment — may require adjusting your income tax and GST claims accordingly. Keep records of any changes and update your calculations.

Summary

Claiming home office expenses can provide substantial financial benefits for home-based workers. Following these steps while maintaining accurate records maximises your deductions and credits. Consulting a tax professional is recommended for complex situations or if you're unsure about your eligibility.

For a simpler way to track and identify your home office expenses throughout the year, try Prosaic — our AI automatically reads your bank transactions and flags claimable expenses for your accountant to review.