Small Business Tax Dictionary
Apportionment
Apportionment is the process of dividing home office expenses between personal and business use. This concept becomes relevant when a workspace serves dual purposes within a residential setting.
How apportionment works
When part of your home is used for both personal and business purposes, you can only claim the business portion of related expenses. The determination of the deductible business portion relies on two primary approaches:
Floor Area Method — Comparing the square footage dedicated to business activities against the total home area. For example, if your home office occupies 10% of your home's total floor area, you can claim 10% of eligible home expenses.
Time-Based Method — Calculating the proportion of hours spent conducting business in the shared space. This method is useful when the same room is used for both personal and business activities at different times.
Why accurate apportionment matters
Accurate documentation and a clear method of calculation are vital to ensure compliance with tax regulations. If you claim too little, you miss out on legitimate deductions. If you claim too much, you risk penalties or audits.
Tax authorities in New Zealand, Australia, and the UK all require that mixed-use expenses be apportioned fairly, and that your chosen method be consistently applied and well documented.