Home Movies by the Book

With the end of the financial year fast approaching, it’s time to start thinking about getting that 2013 tax return under way. Everyone wants to legitimately maximise their tax deductions and one item that film industry workers have the opportunity to claim is home office expenses.

If you are a self-employed contractor (or a shareholder employee of your own company) and have a home office and/or other area in your home used primarily for business purposes then you are entitled to make a claim for home office expenses in your income tax and GST returns. However, if you occasionally use an area normally used for private purposes (e.g. the kitchen table) for business purposes, you can’t make a home office claim.

These expenses may include mortgage interest (not principal) or rent, rates, lighting and heating along with home and contents insurance and repairs and maintenance (note that from 1 April 2011, depreciation on buildings can no longer be claimed). You can only claim the portion of the expenses that relate to the area set aside for work. This is expressed as the percentage of the office compared to your home’s total area e.g. if your office is 12m^2 and the total area of your home is 120m^2 then you can claim 12/120 or 10% of the above outgoings as home office expenses.

If you are GST registered, you can also claim back the GST on the business portion of the expenses that are subject to GST (rates, power etc but not interest and rent). You will need to retain tax invoices for your outgoings to support your GST claim. Your claim for home office expenses for income tax purposes is then calculated on the GST exclusive amounts. If you are not GST registered, your claim is based on the GST inclusive amounts.

An example of how the home office expense claim is calculated is as follows:

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Type of Expense       | GST Incl Amount | GST Amount | GST Excl Amount

Mortgage interest or rent   | $15,600     | $0     | $15,600

Rates              | $1,840     | $240    | $1,600

Insurance (home and contents) | $1,380     | $180    | $1,200

Lighting and heating      | $1,150     | $150    | $1,000

Repairs and maintenance    | $460      | $60    | $400

Water rates          | $1,150     | $150    | $1,000

Total Outgoings        | $21,580     | $780    | $20,800

Percentage to Claim (10%)   | 10%       | 10%    | 10%

Amount to Claim        | $2,158.00    | $78.00   | $2,080.00

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If you are GST registered, you can therefore claim back $78 GST in your GST returns and $2,080 home office expenses in your income tax return. If you are not registered for GST, you can claim $2,158 home office expenses in your income tax return.

Other expenses you may claim, which are not subject to the floor area calculation are:

• Telephone costs. If you have only one telephone line that you use for both business and private purposes, then IRD should allow you to claim 50% of your phone rental for business purposes. If you want to claim more than 50% of your phone rental you must be able to show that the actual business use of your phone is greater than 50%. If you have a domestic line and a business line, then you can claim 100% of the business line rental but none of the domestic line rental. Toll calls, including calls to mobiles, should be claimed on an actual basis.
• Internet charges may be fully deductible if justifiable.
• Business stationery.
• Depreciation on equipment and furniture you use in your home office e.g. computers and printers, software, desk and shelving. Note you may need to adjust these claims to take into account any personal use. Assets costing less than $500 can generally be claimed in full as an expense.

If you are operating your business through a company and you pay for your home’s outgoings personally, your company can claim a tax deduction for the business portion of the above outgoings, provided it reimburses you for that portion of those outgoings. In this situation, it can also claim the GST content of the business portion of your home office expenses in its GST returns, provided it holds the original tax invoices to substantiate its claim.

We note that the Government has recently released an issues paper on the tax treatment of employee allowances and similar payments. This paper proposes that any reimbursing payments made by an employer to meet an employee’s internet and other electronic communication costs would be taxed in full when those costs are partly work related and partly private in nature and there is no separately identifiable work or private element.

Phil Gore is a chartered accountant with Pieter Holl and Associates Ltd, a chartered accountancy firm providing tax advice and business advisory and compliance services to the film industry. Phil can be contacted at phil.gore@phaal.co.nz or (09) 925 7635.