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Income Tax Act 2007

Deductions - Specific rules for expenditure types

DB 18AA: Square metre rate method

You could also call this:

“Calculating deductions for mixed-use space using area measurements”

You can choose to use the square metre rate method to figure out how much you can deduct for the business use of a place that you use partly for business and partly for other things. To work this out, you use a special formula. The formula adds two parts together. The first part is the total costs of the place (like mortgage interest, rates, and rent) multiplied by how much of the place you use for business. The second part is the number of square metres you use for business multiplied by a rate the Commissioner sets.

In the formula, you need to know a few things. The total premise costs are all the mortgage interest, rates, and rent you’ve paid for the buildings and the land around them. The business proportion is worked out by dividing the area you use for business by the total area of all the buildings. The business square metres is the total area of parts of buildings you mainly use for business. The square metre rate is a number the Commissioner tells everyone to use.

If you choose to use this method, you can’t claim any other deductions for using the place for business. The Commissioner will set and tell everyone what the square metre rates are from time to time.

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View the original legislation for this page at https://legislation.govt.nz/act/public/1986/0120/latest/link.aspx?id=DLM7270180.

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Part D Deductions
Specific rules for expenditure types

DB 18AASquare metre rate method

  1. A person may choose to apply this section to determine the amount of a deduction, in an income year, for the proportion of business use of a premises (the premises) that is used partly for business purposes and partly for other purposes.

  2. The amount of the deduction allowed in an income year for the business use of the premises is calculated using the formula—

    (total premise costs × business proportion) + (business square metres × square metre rate).

    Where:

    • In the formula,—

    • total premise costs is the total amount of actual mortgage interest, rates, and rent that the person has paid with respect to buildings and their curtilage on the premises in the income year:
      1. business proportion is determined by dividing business square metres by the total area of buildings on the premises in square metres:
        1. business square metres is the total area, in square metres, of any separately identifiable parts of buildings on the premises that are used primarily for business purposes:
          1. square metre rate is the applicable square metre rate that is published by the Commissioner.

            1. A person who makes an election to apply this section under subsection (1) is not entitled to claim any other deductions for the business use of the premises.

            2. For the purposes of this section, the Commissioner must from time to time set and publish square metre rates.

            Notes
            • Section DB 18AA: inserted, on (applying for the 2017–18 and later income years), by section 71(1) of the Taxation (Business Tax, Exchange of Information, and Remedial Matters) Act 2017 (2017 No 3).
            • Section DB 18AA(1): amended (with effect on 1 April 2017), on , by section 150(1) (and see section 150(3) for application) of the Taxation (Annual Rates for 2018–19, Modernising Tax Administration, and Remedial Matters) Act 2019 (2019 No 5).
            • Section DB 18AA(3): replaced (with effect on 1 April 2017), on , by section 150(2) (and see section 150(3) for application) of the Taxation (Annual Rates for 2018–19, Modernising Tax Administration, and Remedial Matters) Act 2019 (2019 No 5).