A new method is available to calculate how much of your home office costs you can write off for tax purposes.

The new method will often give a better result than the old method. It is also faster and easier to apply and calculate.

The new method is not compulsory and tax payers can still use the old method.

The old method

Up until the introduction of the new method, taxpayers using their homes for both private and business use were required to use a calculation method that produced a fair and reasonable result.

Typically, the method most taxpayers have used is to take the percentage of the office to the total home area and multiply this by the total household costs eg. mortgage interest, rates, power, R&M, insurance etc..

The new method

The new method works a little bit differently and is broken down into two parts. The first part is similar to the old method whereby the office area % is applied, but only in relation to mortgage interest, rates and rent (if renting the property). The utility costs eg. rates, power, insurance are excluded.

The second part is where the actual area of the office room in square meters (sq/m) is multiplied by a per sq/m rate set by the IRD. The rate is set annually and is a proxy for the utility costs of a typical household. The sq/m rate for the 2018/19 year is $41.10.

The two parts are then added together to give your total home office cost.

Under the new method taxpayers do not have to keep track of their utility costs and can simply apply the $41.10 rate, thus saving time and effort.

Based on our experience the new method will often get a better result as the $41.10 sq/m rate is fairly generous.

The old method may still give a better tax deduction where household utility costs are high, and/or where the value of repairs and maintenance in the year is high.

For more information contact your Ingham Mora accountant, or Grant Neagle on 07 927 1225.

Grant Neagle