Kylie, who is a Business Advisory director at our Taranaki office, says many people get information via friends in business. But without understanding the full background or legislative factors, it’s easy to misinterpret deductions – or be unaware of what’s available.

Your business structure (company, trust, sole trader or contractor) affects the way you can claim expenses. You also need to be mindful of the grey area between business and personal expenses.

“If they’re incurred in generating your income, then they’re claimable,” she says. “There are just restrictions on some items.

“The question to ask is, ‘does it relate to me or to my business?’. If there’s a private element, there are extra rules and things to consider. We can take the pain out of it because we’ll calculate everything efficiently and correctly to give you the assurance that you’ve claimed everything you can and have paid your taxes correctly.”

She says it’s also important to question the necessity of expenses. It’s not worth spending excessively when the business doesn’t need it just to get the tax deduction.

Deductible expenses

If you work from home, a portion of the costs incurred may be deducted against your income, providing you have a dedicated office. They’re calculated on your office area as a percentage of the floor space of your wider home, and include:

• The interest on your mortgage or rent if you don’t own the property
• House and contents insurance
• Rates
• Electricity and gas
• Security
• Telephone and internet
• General repairs and maintenance

Some work expenses may be claimed regardless of where you’re based. Things like:

• Vehicle costs, transportation expenses and business-related travel
• Rent for your business premises
• Work-related phones and internet
• Gifts for staff and clients (“there are different rules relating to each of them,” says Kylie).
• Some entertainment
• Depreciation on assets that cost more than $1,000
• Interest on money borrowed for the business
• Some insurances
• Work uniforms
• Stationery
• Membership of professional associations
• Work-related journals and magazines
• Some legal expenses
• Research and development

Entertainment

This must relate to your business and what you can claim on is affected by variables such as location and recipients. For example, you can claim 100% if you’re dining out alone or with an employee while travelling for business, but if you take an external business connection for a meal you can only claim 50% of the costs.

Another example is the difference in the amount you can claim for entertaining staff on work premises versus offsite, also taking into account whether it falls within normal staff hours, and if food or drink are involved.

Business-related legal fees

These can be claimed as an expense if they’re under $10,000, but upwards of that, every invoice must be checked for whether it relates to capital or income.

Motor vehicles

Vehicle expense claims are another area that needs careful consideration. “It’s a bit like entertainment, it’s not straightforward, it’s different for every business structure,” says Kylie.

Key things to consider include the definition of a work vehicle, if you can claim on signwriting, repairs and maintenance; whether you need to pay Fringe Benefit Tax or keep logbooks, and whether a portion or 100% can be claimed.   

Repairs and maintenance

It’s important to understand whether items are a capital or revenue expense, which depends on the asset and if you’re repairing or replacing it. Then there’s the question of which items are eligible for depreciation over the course of their useful lives, as decided by Inland Revenue.

Residential rental property expenses

There are also multiple expenses you can claim if you own a rental property, after taking into account whether the property is rented or available to rent. Major repairs that require the property to not be tenanted can change the status of expense deductions. The biggest question is whether repairs are capital improvements (non-deductible) or repairs and maintenance (deductible).

Rental property expenses have also been complicated by incremental changes to how much can be claimed on mortgage interest.   

Why ask us for help?

As accountants, we know what you can and can’t claim on, and will ensure that your accounts meet Inland Revenue requirements.

Calculating your own expenses and taxes can lead to you being penalised or charged more interest by Inland Revenue if you get anything wrong or attempt to stretch the rules.

“Getting trusted, professional advice is important, and you know you’re getting the right advice because we’re not just calculating your profits and taxes, we’re helping with your business and adding value by considering other things you need to know or look at,” says Kylie.

“For example, we might note that you have a high percentage of certain expenses in relation to sales, which could mean you are not charging enough.

“This can lead to other conversations about the direction of the business and everything needed to help it succeed, from the best structure to budgets, business growth, short-term goals, employing extra staff, different product and service lines, accounting software, business processes, types of taxes, their differing due dates, and much more.”

For help with your expenses and accounting, contact Kylie.Hollard@bakertillysr.nz or any of our Business Advisory Services or Taxation experts throughout the country.