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Working from home: What can you claim on tax?

Find out what items you can claim for your home office and discover how to lodge your return correctly.

The coronavirus outbreak has seen many businesses around New Zealand taking a safety-first approach and encouraging or mandating their staff to work from home. Whilst working from home can mean using more electricity and Internet than usual, the good news is that the Inland Revenue Department (IRD) has guidelines in place that allows you to claim back on some of these expenses when it comes time to fill out your tax return.

It’s important to distinguish whether you’re an “individual” working from home, or if you’re a “business” using your home as an office space. If you’ve been asked to work from home by your employer as a result of coronavirus, it’s likely you fall into the first category of individuals working from home.

Different rules apply depending on which category you fall under, so before submitting your tax return this financial year, understand what kinds of deductions you can claim for your home office expenses.

Deductions for individuals working from home

If you work from home and you use a computer, phone or other electronic devices to carry out your role, you could be eligible to make a claim deduction.

To do this, you need to demonstrate how you’ve directly used the device for work, as you can only claim the work-related expense. Records to illustrate how you’ve worked out your claim may include phone or Internet bills.

It’s critical that you maintain your records because if your tax return is reviewed and you don’t have the corresponding records, you may be up for a penalty.

What can I claim if I work from home?

You may be able to claim deductions for home office expenses including running costs and occupancy expenses, as outlined below.

Running costs

If you carry out some of your work from a home office, you may be entitled to a deduction for the costs you incur while running it, such as:

  • Home office equipment: For equipment such as printers or telephones, you can claim for the cost or you can claim for the decline in value (for items costing $500 or more).
  • Work-related phone calls: These may include mobile calls or phone rental if you can prove that you’re on a work call or that you regularly make calls to your employer or clients.
  • Heating, cooling and lighting: If you can show heating, cooling or lighting expenses for the home office, you may be eligible to make a claim.
  • The cost of repairs: These include the cost of repairs to any home office furniture or fittings.
  • Cleaning expenses: If you can show cleaning expenses directly related to the office space.

Occupancy expenses

If you only work from home from time-to-time and your home space is not actually your “everyday office” space, you generally can’t claim a deduction for occupancy expenses, which include mortgage interest, rent and council rates.

Tools, equipment and other assets

You may also be able to make a claim for relevant tools, equipment or assets used in your home office. That is, if you buy tools, equipment or assets to help earn you income, you could claim a deduction for some or all of the cost.

The amount you can claim depends on the amount of time you use them for work purposes. For example, if you bought a computer which you use half for work purposes and half for private purposes, you can claim only 50% of the cost or decline in value.

Examples of tools, equipment or assets that you may be able to claim for your home office:

  • Calculators
  • Computers and software programs
  • Desks, chairs and lamps
  • Filing cabinets

You can claim the work-related expense of repairing and insuring your equipment plus any interest on the money you borrowed to purchase these items.

Keep in mind that if you use any of the above items for both personal and work-related use, you need to keep records that demonstrate how you estimated the amount of private use and work-related use.

Hang on to your dockets

It’s a good idea to keep a record of your home office expenses including:

  • Receipts, for expenses such as those for depreciating assets
  • Diary entries you make to record small expenses
  • Itemised phone accounts that clearly identify work-related calls
  • A diary that details how much you used your equipment, home office and phone for business purposes over a representative month

Deductions for businesses who operate from home

It’s important to understand that a business that operates from home is different from an employee who works from home. If you run your business from home, you can claim income tax deductions for a portion of the costs owning, maintaining and using your home for this use.

How do I know if my home is my place of business?

Your home is considered your place of business if you run your business from home and a room is set aside exclusively for your business activity. For example, a business consultant whose main office is in their home where clients visit them or a doctor who has their surgery or consulting room at home, and their patients visit them.

What deductions can I claim if I run a business from home?

If you run your business from home, you may claim both running and occupancy expenses.

Running Costs:

  • Utility costs: The expenses related to running the home office utilities such as electricity and gas.
  • Business phone costs: If you use a phone for business purposes, you can claim for the rental and calls, but not the installation costs. If you use the phone for both business and personal use, you can claim a deduction for business calls.
  • Depreciation of office plant and equipment: You can claim for the decline in value of equipment such as desks, chairs and computers.
  • Depreciation of curtains, carpets and light fittings: You can claim for the decline in value of these materials and fixtures.

For these running costs, you can use a floor plan to allocate the proportion of items to private and business use.

What if I don’t have an allocated area of use?

If a floor plan isn’t appropriate, other methods may apply. For instance, you could compare power bills from before you began operating from home to after you commenced operation.

When determining these costs, remember to account for holidays and illness.

Occupancy Costs:

  • Costs associated with owning or renting a house: These may include rent, mortgage interest, insurance and council rates. You can claim the portion of these costs that relate to the room that you use as your place of business. Often this is calculated by the floor area (as a proportion of the floor area in your whole property).

Case Study

Rachel and Justin have a graphic design business where they carry out their work and meet clients in their home office. In this case, Rachel and Justin can claim both running and occupancy expenses.

Ben, on the other hand, is an accountant and has an area set aside at home for his work, but it’s not his main place of business so he can claim a portion of his running expenses, but not occupancy expenses.

A common method to determine how much you can claim is to use the floor area you use or the proportion of the floor area relative to your entire home. Rachel and Justin have worked out that their home office is 20% of their whole home so they can claim 20% of their occupancy expenses when they lodge their tax return online.

How to lodge your tax return online

When lodging your return online, you can use myIR, a secure online service. Please note that to lodge your tax return online, you need to create a myIR account on the IRD website.

What is myIR?

myIR is designed for individuals with straightforward tax conditions. Available on tablets, smartphones and computers, you should use myIR if:

  • You were a New Zealand resident for tax purposes for the last financial year
  • Your only income was from salary and wages, allowances, bank interest, dividends and/or government benefits
  • Your only deductions are for work-related expenses, expenses related to income from interest or dividends, gifts and donations and/or the expense of managing your tax affairs

How do I lodge my tax return with myIR?

Lodging your tax return online is easy when you have all the information you need to lodge. myIR pre-fills your return with information from your previous tax return and with the information provided by your employer, bank, government agencies and other bodies.

So all you have to do is review the information, add any missing or required information and then select “submit”.

If you’re in business as a sole trader or a partner in a partnership, you can use myIR to prepare and lodge your individual tax return.

You can use myIR to lodge your tax return even when you’re overseas.

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