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Potential Tax Deductions
Everyone loves to reduce their tax bill by claiming expenses. However deductions are only allowable in the context that the expense was incurred in the process of deriving assessable income, and there is an intention to make a profit.
consider the following deductions and whether they apply to your business:
- ACC insurance premiums: - As per the ACC website "Are premiums for ACC CoverPlus Extra tax deductible? Premiums are tax deductible for self-employed people. If you are a shareholder-employee and covered under ACC CoverPlus Extra may be able to claim this as an expense if your employer company pays your CPX levy or reimburses you for payment of these levies. The amount paid / reimbursed (excluding the earner levy) will be tax deductible as an expense to the employer company."
- Air Fares and Travel Expenses for business travel
- Accounting Fees (some exceptions here - w.r.t. startups, disallowed claim / activity then no deduction)
- Advertising (prepayments > $12,000 to be written back if not used within 6 months
- Amenity costs - (example tea, coffee, milk, sugar, toilet paper)
- Audit Fees
- Employee Allowances
- Bad Debts (must be written off in ledger before year end - Bad Debts recovered is assessable)
- Bank Fees
- Business coaching (when business is beyond startup phase)
- Cleaning
- Consultants fees
- Contractor progress payments made
- Couriers fees
- Depreciation (use the IRD depreciation rates schedule)
- Directors fees
- Duty
- Documents archiving / destruction
- Entertainment (varies between 0%, 50% and 100% - refer to the IRD guide)
- Flowers
- Freight
- Fringe Benefit Tax
- Home Office Expenses
- Heating, Lights, Power, Gas
- Interest on business loans
- Insurance, also income protection insurance
- Inventory used (as opposed to inventory increasing is assessable)
- Legal fees: - With effect from 1 April 2009, businesses can generally claim a full tax deduction for legal expenses up to $10,000 in the year those expenses are incurred. For expenses over $10,000 the usual (old) tax rules apply and legal expenses need to be split between those that are fully deductible and those that need to be depreciated because they relate to a capital purchase. The amount of $10,000 excludes GST if the business is GST registered. The deduction is only for businesses where the total legal expenses in one year are $10,000 or less.
- Parking
- Petty cash expenses
- Printing
- Postage
- Promotional Expenses
- Protective clothing, safety gear.
- Rent & Rates, Operating Lease Expenses
- Repairs and Maintenance; Assets costing < $500
- Records Archiving
- Road User Charges
- Royalties
- Rubbish Removal
- Training / Seminars / Business Conventions
- Subscriptions
- Stationery
- Security monitoring expenses
- Promotions and Marketing
- Duty
- Parking
- Postage
- Telephones, Fax, Internet
- Travel expenses (Airfares, accommodation, taxis)
- Vehicle Expenses
- Wages
- Website maintenance
- Not an exhaustive list, however hopefully will help. It is a good idea to make file notes detailing reasons for expenditure claimed, so that if questions are asked, there is a good audit trail.
Non Deductible Expenses
- Fixed Asset purchases greater than $500 - need to capitalise and depreciate (i.e. spread costs over the life of the asset)
- Real Estate Agents fees for selling property
- Property Investors finders fees (capital cost - forms part of the acquisition costs)
- Principal portion of mortgage payments
- Interest on Mortgages where the loan was taken out for a private home - care needs to be taken when structuring loans. For interest to be deductible, the interest must be incurred on borrowings that are being taken out to purchase properties for investment purposes (income producing property).
Uncertain about whether an expense is tax deductible?
In some circumstances, an expense incurred falls into a grey area, where it is not certain about whether the expense is tax deductible. A good approach is to leave the expense out of your initial tax return and prove your case for tax deductibility after the assessment has been completed. Including such expenses in filing initial tax returns is not wise (severe penalties likely).
A Notice of Proposed Adjustment (NOPA IR 770) can be filed with Inland Revenue after your tax return has been assessed, along with your proof and evidence that the expense in question should be deductible.