2021 square metre rate adjustment

You may recall that the passing of the Taxation (Business Tax, Exchange of Information, and Remedial Matters) Act 2017 saw the introduction of new section DB 18AA into the Income Tax Act 2007, which provided taxpayers with a more simplified method for the calculation of deductions for premises that are used for both business and personal purposes.

Undoubtedly, all of us have clients who use their private residence for both business and private purposes. This business use may give rise to deductions that can be claimed by the business owner, however we all appreciate the associated compliance cost burden of having to tally up all the numerous individual expense items that need to be recorded and apportioned between business and personal use, when considering the amount of tax at stake.

In this regard, the square metre rate option provided a simplified process, setting a fixed utility cost rate per metre (electricity, gas, home and contents insurance, telephone, mobile and internet charges), to which your client only needed to then calculate and add their premise costs (mortgage interest, rates, and rent). The square metre rate is set by using information obtained from Statistics NZ, which IR then uses to calculate the national average, annual cost of utilities for the average sized New Zealand household.

IR has advised that the square metre rate for the 2021 income year (1 April 2020 to 31 March 2021) is set at $44.75.

You can find more information on the use of the square metre rate option, by referring to Operational statement OS 19/03, ‘Square metre rate for the dual use of premises’.

This article from the 'A Week in Review' newsletter was originally published Monday 31st May 2021. If you have any questions or would like a second opinion on any national or international tax issues, please contact me [email protected]. 

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