A new section has recently been introduced to the Income Tax Act 2007 to allow a simplified calculation of deductions for private residence that are used for business purposes

The purpose of this section is to allow for reduced compliance obligation.

The new method is called the “square metre rate”. This method removes some requirements for the taxpayers in relation to keeping detailed records of the utilities costs and apportioning these between private and business use. Premises costs (interest, rates, and rent etc.) are still required to be claimed on the business proportion of actual expenditure.

The square metre rate was $41.70 per square metre for the 2018-2019 income year. The rate is updated each year based on the national average utilities costs.

The calculation method is split into three simple steps. The first step is to identify the area of the buildings (in square metres) that is mainly used for business and multiply that by the square metre rate given by Inland Revenue. The second step is to calculate the business proportion of the total premises costs. Once these two amounts have been figured out, you can then add them together to get the total deduction.

If you decided to use this calculation method, no other deduction in relation to the residential premises can be claimed.