If you operate your startup from home, you may be able to claim some (or all) of your home office expenses as a tax deduction in your tax return. These expenses can include rent, electricity, furniture, equipment, and more.
To work out if you can claim rent and other home office expenses, there are a few questions you first need to answer:
Is your startup what the Tax Office calls a home-based business?
This means you operate your startup either:
- at home – i.e. you carry out most of the business from home and clients come to your home. An example is a startup which runs cooking classes from their home kitchen,
- or from home – i.e. you don’t own or rent any other premises for your business and do most of your work from home. An example is a business coach who works from their home office, and holds their client coaching sessions either via Skype/ Google hangouts or from their clients’ premises.
If you answered yes, keep reading. You may be able to claim home office expenses.
Does your home office (or area set aside for your business) have what the Tax Office terms the ‘character’ of a place of business?
At times this gets quite confusing. The Tax Office has listed some guidance on when your home office (or area set aside for your business) is likely to have the ‘character’ of a place of business:
Your home office (or area set aside for your business) is:
- clearly identifiable as a place of business
- not suitable for non-business purposes
- used only for carrying on your business
- clients regularly visit your home office
If you answered yes, then you may be able to claim a portion of your home rent as a tax deduction. A common method to determine how much rent to claim is based on the floor area of your home office. For example, if the floor area of your home office is 20% of the total area of your home, then you can claim 20% of your rent as a tax deduction. On top of your rent, you may also able to claim other expenses related to your home office such as electricity, business phone, equipment, furniture and cleaning costs.
If you answered no, then you may still be able claim other expenses which you incurred in running your business from home. These running expenses include:
- Electricity and gas costs for your home office
- Internet charges
- Business phone costs (usage and cost of purchasing the phone)
- Office furniture – such as office chair, desk etc. Note, that these items (based on their cost) may be required to be expensed over a number of years, rather than expensed immediately
- Office cleaning costs
Remember, always track your numbers when it comes to home office expenses. Even if you may not be able to claim your home rent, there are lot of other home office expenses you may be able to claim.
For more information on home office expenses for your startup, refer to the Tax Office guidance on Home-based businesses.
Disclosure: This article is not intended to replace in any way professional accounting advice.