Home office deductions: the two methods

Most contractors work at least partly from home, which makes part of the household's running costs a business expense. Inland Revenue gives you two ways to calculate the claim, and they differ mainly in how much record keeping they demand. This guide explains both, the premises costs that sit outside the shortcut method, and how to choose.

The basis of every home office claim

Both methods start from the same measurement: the floor area you use for business, as a share of the home's total floor area. A 12 square metre office in a 120 square metre house is a 10% business share. The space should be genuinely used for the business; a dedicated office is the clean case, and partly-business spaces are claimed in proportion to their business use.

Method one: the square-metre rate

This is the shortcut method. You multiply your business floor area by Inland Revenue's published rate, which is $57.30 per square metre for the 2026 income year (the year ended 31 March 2026), and that is your claim for utility-type running costs: power, heating, insurance, and the home-cost component of your phone and internet. You don't need receipts and you don't have to apportion bills. The rate is built from national household cost data and it updates each year.

The 12 square metre office claims 12 x $57.30 = $687.60 for the year under this method, before the premises costs below.

Premises costs: claimed either way

The square-metre rate deliberately excludes the big property costs, and this is the part people miss. Mortgage interest (to the extent it's deductible), council rates, and rent are claimed in addition to the square-metre rate, using your business floor-area percentage. A renter paying $600 a week with a 10% business share claims around $3,120 of rent a year on top of the $687.60 above. For many contractors, the premises share is most of the claim.

Method two: actual costs

This is the long way. You gather the year's real household running costs (power, insurance, repairs affecting the whole house, and so on), apply the business percentage to each, and claim the total, plus the same premises costs as above. It takes more record keeping, but it gives a better claim whenever your real costs run above the national average the square-metre rate assumes, such as heat pumps running all day, a home lab, or expensive insurance. Keep every bill for seven years.

Choosing between them

• Default to the square-metre rate if your home running costs are ordinary. The claim is smaller on paper than a maximal actual-costs claim, but the time you save and the simpler records often buy more than the difference.
• Run the actual-costs numbers once if your costs are clearly above average. One afternoon with a year's bills tells you whether the method is worth its bookkeeping permanently.
• Either way, measure honestly. The floor area percentage is the number an audit tests first. A floor plan with the office marked is the record that settles that quickly.

How Coffer helps

Coffer works this claim out for you. Choose Home office on the Expenses tab, then enter your home and office floor areas and the year's rent (or mortgage interest and rates if you own). Coffer applies the square-metre rate method, or your actual utility costs if you prefer, and shows both figures so you can pick the larger claim. It records the result as an expense for the year. Sharing a space is handled too: you say how much of its use is business, and the claim scales to match. Each year's details carry forward to pre-fill the next, and the saved entry documents the full working for your accountant. Confirmed expenses lower the taxable profit Coffer projects, which adjusts the income tax ringfenced from each payment. The wider expense rules, including the records that keep claims defensible, are in the business expenses guide.