Small Business Tax Dictionary
Home Office Deduction
The home office deduction permits individuals utilising a portion of their residence exclusively for business activities to deduct related expenses from their taxable income.
What expenses are eligible?
Eligible home office expenses typically include:
- A portion of rent or mortgage interest
- Utilities such as electricity and heating
- Insurance premiums
- Depreciation of furniture and equipment used for business
The deduction's purpose is to alleviate the financial burden of maintaining a workspace within a residence.
Eligibility requirements
Eligibility requirements and specific rules differ by country, but common requirements include:
- The space must be used regularly and consistently for business
- In many jurisdictions, part or all of the space must be used exclusively for business
- You must be able to substantiate your claim with clear records and calculations
Country-specific rules
- New Zealand (IRD) — The square meter rate method provides a simplified way to calculate deductions, or you can use actual costs apportioned by floor area
- Australia (ATO) — Running expenses (electricity, internet) and occupancy expenses (rent, mortgage interest) may be claimable depending on your situation
- United Kingdom (HMRC) — Self-employed individuals can use simplified flat rates or claim actual costs using apportionment
Why documentation matters
Maintaining thorough documentation is critical to substantiate any claimed deduction. Receipts, utility bills, floor plans, and records of working hours all help support a claim if queried by tax authorities.