How to Claim Home Office Expenses in NZ

If you work from home as a self-employed person or contractor, you can claim a portion of your household expenses as a tax deduction. The rules are straightforward once you understand them — and the savings can be meaningful.

Important: Employees working from home generally cannot claim home office expenses under NZ tax law (unlike in some other countries). This guide is primarily for self-employed people and contractors.

Who Can Claim?

You can claim home office expenses if:

• You are self-employed (sole trader) or operating through a company/partnership
• You are a contractor receiving schedular or self-employed income
• Part of your home is used for your business: you can deduct home costs to the extent they relate to that business use (Income Tax Act 2007 s DA 1), not the private share (s DA 2(2)). The square metre rate method counts only separately identifiable areas used primarily for business (s DB 18AA)

Employees paid by a single employer via PAYE generally cannot claim home office expenses on their personal tax return, even if they work from home regularly. The exception is if the employer reimburses you — but that’s a reimbursement, not a personal deduction.

The Proportional Method

IRD accepts two calculation methods. The first is the proportional method, which apportions your actual household costs:

1. Measure the floor area used for business (your home office room or dedicated workspace)
2. Divide by the total floor area of the home
3. Apply that percentage to eligible household expenses

Example:

• Home office: 12 m²
• Total home: 120 m²
• Business proportion: 12 ÷ 120 = 10%

This 10% is applied to eligible fixed household costs.

The Square Metre Rate Method

The second is the square metre rate method in section DB 18AA of the Income Tax Act 2007, available when part of the home is set aside and used primarily for business. The deduction is:

(mortgage interest, rates and rent × business proportion) + (business square metres × IRD’s square metre rate)

The business proportion is the same floor-area share as above. IRD publishes the square metre rate each year, and it stands in for every other cost of using the home, such as power, insurance and repairs. If you choose this method you cannot also claim those costs: section DB 18AA(4) allows no other deductions for the business use of the premises. The eligible costs and worked example below use the proportional method.

Eligible Costs

The following household expenses can have the business proportion claimed as a deduction:

Fixed (claim the floor area proportion):

• Rent (if renting)
• Mortgage interest (note: not mortgage principal repayments)
• Rates (council rates)
• Home insurance
• Repairs and maintenance to the whole home

Variable (claim the actual business proportion):

• Power and gas — estimate the proportion used in your home office versus the rest of the house
• Internet — claim the business portion of a plan used for both, worked out in a way that gives a fair and reasonable result
• Landline that is also your private line — IRD allows 50% of the rental; business toll calls are 100% deductible
• Separate business line — the full cost
• Mobile — IRD’s home office page sets no percentage; claim only the business share you can support with records

Fully deductible (100% business use):

• Equipment purchased exclusively for business (computer, printer, desk, chair) costing $1,000 or less, or a group bought together from one supplier at the same rate that totals $1,000 or less; items costing more are depreciated
• Software subscriptions used only for work

Worked Example

This is an illustration with assumed figures, not an IRD example. A self-employed graphic designer works from a dedicated 10 m² room in a 100 m² rental home and assumes 60% of their internet use is for work (IRD sets no internet percentage: the business proportion only has to be fair and reasonable, and you keep the records that show how you worked it out). Their annual costs:

At a 30% marginal tax rate, $3,450 in deductions saves approximately $1,035 in tax.

Mortgage Interest vs Mortgage Principal

If you own your home and have a mortgage, you can claim the business proportion of interest — not the principal repayment. Principal repayments are capital, not an expense.

Example: $600,000 mortgage at 6.5% — annual interest approximately $39,000. With a 10% home office proportion, that’s $3,900 deductible.

Note: Claiming home office deductions on a property you own can, in some cases, affect your main home exemption from the bright-line test. In practice, IRD takes a practical approach and this is rarely an issue for modest business use, but get advice if you’re claiming a large proportion.

Non-Deductible Items

The following cannot be claimed for home office purposes:

• Mortgage principal repayments
• Costs of the home if it’s not used for business at all
• Personal costs like groceries, streaming subscriptions, or personal phone calls
• Costs for rooms not used for business

Record Keeping

IRD requires you to keep records supporting your claims for 7 years. For home office expenses, keep:

• Floor plan or photo showing the dedicated office space
• Measurement records (square metres of office and total home)
• Invoices and receipts for all household expenses claimed
• A simple calculation sheet showing the proportion applied each year

A simple spreadsheet works fine. There’s no prescribed format.

Contractor vs Employee: The Critical Distinction

IRD’s rules clearly separate:

• Contractor / self-employed: Can claim home office deductions on IR3 (personal tax return) or company tax return
• Employee (PAYE): Cannot claim home office deductions personally, even if their employer requires them to work from home

If you are genuinely self-employed — setting your own hours, invoicing multiple clients, bearing financial risk — the home office deduction is available. If you are effectively an employee (one main “client,” set hours, supervised work), IRD may treat your work income as employment and disallow home office claims. The employee vs contractor distinction matters beyond just tax deductions.

Claiming via Your Tax Return

Sole traders claim home office expenses on their IR3 tax return under “other deductions.” If you operate through a company, the company claims them on the IR4 company return, and you may be reimbursed by the company for the home office proportion.

Use our Self-Employment Tax Calculator to estimate your tax position as a contractor or sole trader.

Sources

• Home office expenses — IRD
• Square metre rate method — IRD
• Employee vs contractor — IRD