Claiming farmhouse expenses in New Zealand

If you’re running a farming business and live in (or use) a farmhouse on the property as part of business operations, you might be able to claim a portion of your household expenses against your farming income.​

The rules were overhauled in 2017, when Inland Revenue released new guidance (Interpretation Statement IS 17/02), effective from the 2017/18 year. This removed the old 25% default farmhouse deduction and replaced it with a split system, where claims are based on whether the farm is classified as Type 1 or Type 2.​

We've broken down the key information you need to know when claiming farmhouse-related expenses.​

For the purposes of income tax deductibility, farms are categorised into 2 types. The difference depends on how much of the farm’s total value* is the farmhouse and curtilage (i.e. the house and land immediately around it, like lawns and garden).​

*You can use rateable values, costs, or formal valuations to establish percentages.​

Special case: sharemilkers and contract milkers who operate as a sole trader or partnership may be able to claim expenses using the simplified approach of a type 1 farm.​

You can claim 100% of rates and mortgage interest on the farmhouse, 50% of phone rental charges, and 20% of operating costs such as electricity, insurance, repairs and maintenance.​

Example:​

Total claimable: $50,000 + $10,000 + $250 + $2,000 = $62,250​

You can claim 50% of phone rental charges, but all other farmhouse expenses must be apportioned based on how much of the farmhouse is used for business activities such as admin, meetings, or running the business.​

Example:​

Riley has a small farm where 60% of the value is attributed to the farm, while 40% is the farmhouse and curtilage. He also uses 10% of the farmhouse for conducting business admin and meetings.​

For expenses covering the whole property, the tax-deductible amount is based on the farm/business portion + the percentage of the farmhouse used for business activities. In this example, it's 60% + (10% x 40%) = 64%.​

For expenses that relate to the farmhouse only, 10% is claimable (based on Riley using 10% of the farmhouse for business).​

Total claimable = $32,000 + $6,400 + $250 + $1,000 = $39,650​

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If the farmhouse is being used as a home office, the IRD’s fixed square metre rate can be used as a straightforward alternative method. This is the calculation often used by businesses in other industries where there’s a home office expense claim. View our home office expenses article for more information.​

GST generally follows the same Type 1 / Type 2 treatment you’ve used for income tax. The key is that your claim must be fair and reasonable, and you should keep a simple note showing how you worked it out.​

Heads-up on the farmhouse: if you’ve claimed any GST on the house/curtilage because it’s used in the farming activity, a future sale can bring a portion of the house into the GST net. Get advice from your accountant before you claim or sell so there are no surprises.​

If you’re unsure which method applies to your farm, it’s helpful to speak with your accountant. Keeping good records such as valuations, floor plans, and usage logs will also help support any expense claims that are part of your farming business’s tax return.​

If you're not working with an accountant or looking to switch, consider Beany. Our team work fully online from all over New Zealand, giving you access to local experts without needing to leave the farm. Book a call with us to discuss your farming business and explore how we can support your accounting requirements.​