EXPENSES YOU CAN CLAIM IF YOU ARE WORKING FROM HOME

        

                                        

A taxpayer carrying on a business for the purpose of deriving assessable income is entitled to a deduction for any revenue expenditure or loss necessarily incurred in carrying on the business.  

To qualify for deductions, part of your home must be set aside regularly and exclusively for the business.  In this regard, the place must be used as either:

The principle place of business for any trade or business in which you engage
As a place to meet and deal with customers in the normal course of your business
To conduct administrative and managerial activities (e.g. record keeping)
In connection with your trade or business if you are using a separate structure that is not attached to your home or residence (e.g. a studio, garage).

If you qualify for the home office deduction, you may be able to claim a portion of certain types of expenses that are associated with your home but arenít deductible by the average and non-business homeowner.  

The following is a summary of many of the expenses that can be claimed if you are running a business which is recognised as a business for tax purposes from home:

   

Home Office Expenses

A taxpayer who uses his or her home partly in furtherance of the conduct of a business is entitled to a deduction in relation to that part of the outgoings which relate to the use of the home for the work-related activities, including:

         power and  gas,

         rates,

         insurance,

         interest on mortgage,

         house and contents insurance,

         depreciation on portion of the house  and assets supplied to the business

         repairs and maintenance.

         rent if the home is rented.  

To figure what percentage of your home operating expenses and depreciation is deductible, the usual method is to divide the area used for your business by the total area of your outbuildings.  For example, if your home and outbuildings measure  400 square metres and you are using 40 square metres for your home office, you will be able to deduct 10% of certain expenses.  

Taxpayers should be careful about apportioning  an appropriate % allocation to all expense claims though, as a number of costs incurred around the home will have a personal content as well.   For example:

         with power it is normally to estimate a reasonable amount which is used for business- in most cases there is one power account for the whole of the house.

         house insurance  and depreciation claims will be made in proportion of the building area used for income earning activities divided by the total area of the buildings at the home.

         Rates should be claimed on the basis of the proportion of the land area used for income earning activities divided by the total land area.  

Claims could be made in respect of a room that is not exclusively used for business  activity.  In this instance an apportionment could be based on a criteria such as the amount of time spent on the income-earning activity.  

Telephone

The following expense claims are allowable:

if a taxpayer has only one line rental charge and is using the phone in furtherance of business activity half the rental cost, regardless of whether the rental charged is at the domestic or commercial rate.  A claim of more than 50% is allowable if the actual use of the telephone supports a higher & claim.
if a taxpayer has more that one line rental charge and is using those other lines for business activity the full rental line charges for those business lines, but not the line rental charge for that line which is effectively a residential line.
any business toll charges on your home telephone lines.
the Yellow Pages Advertising account for your business which may be charged to your Telecom Account.

It is advisable to analyse business/personal toll calls immediately on receipt of the toll accounts, as you may forget what calls were for if you donít do this until the year when your Accountant asks for this.

 

Motor Vehicle Expenses  

If your home is your base, you are entitled to claim motor vehicle expenses incurred in derived business income in travelling from your home.   These could be claimed in the following manners:

the keeping of an analysis of business trips and applying the IRD specified rates to kilometres travelled.
The keeping of a log book against a specific vehicle used, and claiming the total costs relating to that vehicle in proportion to business usage and total usage as per the logbook.

 

Fixed Assets Costs  

Full and immediate write offs are not available against fixed assets (items over $200 which are used over a number of periods).   Instead costs should be phased over a number of periods in the form of depreciation.  

 

Insurance  

Generally only the following insurance types are deductible:

insurance on business assets.
income protection insurance.
professional indemnity.
mortgage repayment if the loan is specific to business activity.

Any insurances where any benefits that may be paid out are exempt from income tax, such as personal life and sickness, are not deductible as business expenses.

   

ACC Levies  

As business taxpayers you will liable to pay ACC Levies.  These are deductible as expenses for tax  purposes.  

 

Books and Periodicals  

You should claim expenditure on newspapers, journals, periodicals, books and other publications.   If you claim a portion of the home newspaper for the business this percentage should have some relationship to the business usage.  

 

Clothing  

In regard to the deductibility of  occupational clothing of a business taxpayer, the basic issues must be whether the expenditure was relevant and incidental to the derivation of gross income or was necessarily incurred in carrying on a business for the purpose of deriving income.   To claim it you would have to show that the clothing is specifically required for that business (e.g. protective overalls) or it is distinctive to that business (e.g. clothing emblazoned with monograms of the business).  

 

Entertainment   

Entertainment carried out specifically for business is deductible, but certain business-related entertainment is subject to a special regime which only allows a claim of 50%.  

Records such as invoices or receipts must be kept to support claims for all entertainment expenses.   Records should be kept of the date the expenses were incurred, the name of the persons entertained, the business they represent, the position they hold, and the reasons for the entertainment.  

 

Interest Paid on Money Borrowed for the Business  

Only interest paid is deductible, not the total amount of loan repayments if they are on a principle and interest basis.    Statements should be obtained from your lender which clearly identify the interest, and an apportionment should be processed if the loan was not totally business related.

 

This summary does not represent the total expense categories that can be claimed.   There are likely to be others, depending on the type of home business.

 

 

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