Home office expenses and introducing assets to your business (Pharmacy Guild – August 2012)

Home office expenses

If you have been using an area of your home for your business, you may be able to claim the business portion of the household expenses as a deduction for income tax. Some of the household expenses include rates, power, house and contents insurance, or interest on mortgage or rent.

Things to look out for:

  • If your home is owned by a trust then the deduction for income tax may be severely limited – we strongly recommend that you consult with your accountant to confirm what is deductible.
  • You may not claim home office expenses more than once, for example if you run more than one business.
  • Depreciation of home office – you will need to account for the business portion of depreciation recovered when the asset is sold.
  • Telephone and tolls – in general you may claim for separate business lines in full, or 50% on home rental, plus business tolls.
  • You are required to keep invoices for all expenses claimed.

Introducing assets to your business

It is important to also consider the assets you own but are using for business activities. Expenses, such as depreciation and repairs, and maintenance on the asset, may only be available
as deductible expenses for the business if they are on the books. You may also be entitled to claim back GST on the asset that you introduce to the business.

Recording the assets on the books will also allow a true reflection of your business, particularly at times of recognising the wear and tear, and replacement, of the asset.

Things to look out for:

  • You will need to establish a Current Market Value when you introduce an asset to the business. For a motor vehicle this may be established by obtaining an LMVD valuation. For other assets you may establish this value by obtaining the average price from the newsletter or an online trading site.
  • There are special rules and tests contained in the relevant sections of the GST legislation that you must satisfy before you may claim the GST for change from non-taxable to taxable use.
    The four requirements are:

1. The second-hand goods were supplied to the registered person by way of sale.

2. The second-hand goods supplied have always been in New Zealand, or in the case of imported goods, have been subjected to GST when imported.

3. The supply was not a taxable supply (ie GST was not charged on that supply).

4. Goods have not been supplied to another GST registered person who is the importer of the goods.

  • You may also wish to consider and weigh the potential cost of Fringe Benefit Tax if the motor vehicle brought into the books is available for private use by employees (including shareholder-employees).

Published in Contact Magazine August 2012.

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