As accountants our job is to work with our clients to help them ensure they are compliant with tax law and answer questions they may have along the way. At EBS we enjoy talking to our clients and we are here to help so we get lots of questions and often they are the same.
We jokingly refer to these as ‘Accounting Myths’ having been passed through people and are often based in fact but have become slightly misunderstood along the way.
This article is going to attempt to clarify some of the available deductions which we get questioned about.
Some key points to think about when deciding what can be claimed as a tax deduction;
- Is the cost incurred in the course of you earning your business income?
- Yes, then this is likely a deductible expense
- No, then this is not a deductible expense
- If you weren’t in business, would you still have this expense?
- Yes, then this is probably not a deductible expense
- No, then this is likely a deductible expense
- If you are purchasing an item, will it be used personally or in the business exclusively?
- If there is an element of personal use, then we may be able to claim some of it.
- If there is no personal element to the item purchased then we should be able to claim it entirely as a business expense.
Some common expenses that are claimed by almost all businesses and are clearly business expenses
- Accounting Fees, if you weren’t in business you likely wouldn’t have this cost so can be claimed as a full business expense.
- ACC Levies, these are payable when you are in business or contracting.
- Bank Fees, for your business bank account
- Salaries & Wages, for paying employees who work in your business
- Purchases of goods for on sale
- Depreciation on business assets
Then as with all accounting things start to get a bit murkier with other expenses, some examples below
- Vehicles, who owns the vehicle is a consideration, type of vehicle and whether or not another vehicle is available for private trips. Depending on the setup we may need to claim only a % of vehicle expenses.
- Interest on loans, what the loan is borrowed for is a consideration here for deductibility.
- Clothing, items of protective clothing, hi vis and work boots are a given, or clothing that is permanently branded with your logo. Clothes you would be happy to pop to the supermarket in usually don’t make it as a tax deduction.
- Income Protection Insurance, normally forgotten but can be deducted
- Entertainment, if you take your staff out for a meal only 50% of the cost is deductible but if you serve a meal at your business premise 100% can be claimed.
Some examples of expenses we are asked about regularly but normally don’t make the cut;
- Glasses, unfortunately the rules are pretty clear on this they are a personal expense and can’t be claimed regardless of needing them for work or not.
- TV streaming services, these are considered personal
- Medical appointments, these are personal and not deductible but if you are purchasing items for your work first aid kit, those are deductible.
- Fines or penalties, speeding fines are not allowed to be claimed as a tax deduction nor are penalties from IRD for paying tax late.
The list is extensive and we are more than happy to answer specific questions and will remind you of any expenses we think you are missing that we don’t see in your accounts. Something as simple as a conversation with your accountant, will usually turn up some forgotten expenses that we can include.
Please note the above are all examples and advice should be requested from your accountant on specific situations.