If you run a business from home or work from home as a self-employed person, you can claim a proportion of your home running costs as a tax deduction. This reduces your taxable income and the income tax you pay. The key is calculating an accurate, defensible proportion.
Claim the business-use proportion of your home costs: mortgage interest (or rent), rates, insurance, power, internet, and repairs. The proportion is calculated as business floor area ÷ total floor area, multiplied by business hours as a fraction of total available time (if not using a dedicated room). A dedicated home office simplifies this — claim the room's proportion of floor area for all running costs. Include the deduction in your IR3 under business expenses.
Who Can Claim
You can claim home office expenses if:
- You are self-employed (sole trader, contractor, freelancer) and use part of your home for business
- You are a company director paying yourself rent from your home for business use (company claims rent, you declare rental income — specialist advice recommended)
Employees working from home cannot claim home office expenses in their personal tax return — this is a common misconception. Employees must have any home office costs reimbursed by their employer.
What Expenses You Can Claim
| Expense | Claimable? |
|---|---|
| Mortgage interest | Yes — business proportion |
| Rent (if renting) | Yes — business proportion |
| Rates (council) | Yes — business proportion |
| Home insurance | Yes — business proportion |
| Power and gas | Yes — business proportion |
| Internet | Mostly — business proportion (may claim majority if business use is high) |
| Water and sewerage | Yes — business proportion (minor) |
| Repairs and maintenance | Yes — business proportion of whole-home repairs |
| Cleaning | Yes — business proportion |
| Home security | Yes — business proportion |
| Mortgage principal repayments | No — capital, not deductible |
| Home purchase price / deposit | No — capital |
| Renovations (capital improvements) | No — capital (may be depreciable) |
Calculating Your Home Office Proportion
Method 1: Floor Area (Dedicated Room)
If you have a dedicated room used exclusively for business: $$\text{Business proportion} = \frac{\text{Office floor area (m}^2)}{\text{Total home floor area (m}^2)}$$
Example:
- Home office: 12 m²
- Total home: 150 m²
- Business proportion: 12/150 = 8%
Claim 8% of all qualifying home running costs.
Method 2: Floor Area × Time (Mixed-Use Room)
If your “office” is a room also used personally (e.g., a spare bedroom or dining room): $$\text{Business proportion} = \frac{\text{Room area}}{\text{Total area}} \times \frac{\text{Business hours per week}}{168}$$
Example:
- Room: 15 m²; Total home: 150 m² → 10% floor area
- Business use: 40 hours/week out of 168 = 23.8%
- Combined proportion: 10% × 23.8% = 2.38%
This method significantly reduces the claim for non-dedicated rooms.
Practical Example
Self-employed graphic designer working from a dedicated 10 m² study in a 120 m² home:
| Expense | Annual total | Proportion | Claimable deduction |
|---|---|---|---|
| Mortgage interest | $18,000 | 8.33% | $1,500 |
| Rates | $2,400 | 8.33% | $200 |
| Home insurance | $1,800 | 8.33% | $150 |
| Power | $2,200 | 8.33% | $183 |
| Internet ($120/month) | $1,440 | 80%* | $1,152 |
| Total claimed | $3,185 |
*Internet claimed at 80% business use — must be supportable.
At a 33% marginal tax rate, this $3,185 deduction saves approximately $1,051 in tax.
GST on Home Office Expenses
If you are GST-registered, you can also claim GST input tax credits on the business proportion of home costs (where the home costs include GST — power, internet, insurance). The GST claim mirrors the income tax proportion.
Depreciation on Home Office Furniture and Equipment
Separately from the home running costs, you can claim:
- Full depreciation on dedicated business equipment (computer, monitor, desk, chair) used exclusively for business
- Proportional depreciation on mixed-use items
Assets under $1,000 can be immediately expensed. Assets over $1,000 are depreciated over their useful life at IRD’s prescribed rates.
Record Keeping
Maintain records for at least 7 years:
- A floor plan or measurements supporting your proportion calculation
- All invoices for home running costs (rates, insurance, power, internet, mortgage statements)
- Notes on business use hours if using the mixed-use room method
IRD may request evidence in an audit. A well-maintained spreadsheet of annual costs and your proportion calculation is sufficient.
Frequently Asked Questions
Can I claim my home office if I work from home part-time and also have a separate office?
You can claim home office expenses for the days you work from home. Adjust your time proportion to reflect the days per week actually working from home.
What if my spouse also uses the room I call a home office?
If the room is genuinely shared between business and personal use, apply the time-based method (Method 2). Personal use by household members reduces the claimable proportion. IRD expects a realistic claim.
I own my home outright (no mortgage). What can I claim?
You can claim rates, insurance, power, internet, and repairs — but not a notional rent or interest (since you have no mortgage). You cannot claim a depreciation deduction on the value of your own home.
Can PAYE employees claim any home office expenses?
No — employees cannot claim home office deductions in NZ. However, employers can reimburse employees for home office costs tax-free (under the employee expense reimbursement rules). Talk to your employer if you work from home regularly.