6 Top Tax Deductible Expenses To Claim!
Under New Zealand tax rules, many expenses can be deducted from your tax payments but not all are 100% deductible. Here is a quick look at what you can claim as tax deductions against income you earn as a salaried worker or a self-employed person.
1. Vehicle Expenses
This is claimable expense worth looking into if you are self-employed, in a partnership or salaried. Currently, you can claim back 73 cents per kilometre for hybrid cars and 81 cents per kilometre for electric cars. Keep in mind, this rate changes every year so it is best to check with IRD for any changes. But note that this rate applies for both petrol and diesel engines. You can calculate expenses using this rate for up to a maximum of 5,000 km of work-related travel per year, anything over that, then you must keep a record of actual vehicle expenses.
For bikers, unfortunately you can’t claim expenses on your motorcycle.
The key to calculating this deduction is separating business versus private use; and the recommended method is to use the logbook and record all your details. Your logbook must record the following:
► start and end of the 90-day test period.
► odometer readings at the start and end.
► distance of each business journey.
► reason for each business journey.
► date of each business journey.
► any other travel/vehicle details.
2. Travel & Entertainment Expenses
These two expenses are often tied up together. If your are required to travel to see agents or clients, then the food and lodging you use are fully deductible. It is pretty essential for you to keep records including invoices, travel details, time spent doing business, time spent not doing business, who you visited and why, business cards, product samples, conference notes and more. Basically you will need to prove that your travel was business related and not a vacation.
Some entertainment expenses tend to be only 50% deductible. These include corporate boxes, pleasure-craft, food and drink, friday night drinks, lunch meetings, client functions, etc. Common activities taking place away from your business premises for the purpose of boosting morale or goodwill.
You just need to be extra careful in keeping records as this tends to be closely inspected by the IRD.
3. Home For Business
If you run a small business at home you can claim that proportion of your home used for business just as long as you keep a full record of all expenses you wish to claim.
Like any other office, you are responsible for keeping invoices and records for expenses you are claiming. You can claim expenses such as rates, insurance, power, mortgage interest, rent, insurance, and repairs and maintenance.
In most cases, you will need to work out the percentage of the work area compared to the total floor area of the house.
4. Holiday Homes
Since 2013–14, owners of mixed-use holiday homes have to work out their income tax obligations differently. The IRD criteria is that if the holiday home is for:
Private use - This includes family members regardless of whether rent is paid or not. It does not include when the asset is used by you to earn income from your business, example, you drive your car for a tourist.
Income-earning - These are days which include the time you spend either occupying or using the asset to repair damage or relocate the asset.
Also, if the holiday home is unoccupied for 62 days or more, then it is regarded as a mixed-use asset.
Deductible expenses from holiday homes are as follows:
► Expenses which relate directly to the income-earning used - advertising for tenants or cost of repairs for damage caused by tenants.
► Expenses relating to rates, insurance, mortgage.
Substantially, you just need to make sure that the home is operated much like a motel sometimes. If the house is only used privately by family and friends, then deductions are unlikely to be accepted.
5. Capital (consumer) Contributions
A payment is a capital contribution if it is made towards the costs of another person’s depreciable property.
Since 2010, the new rules state that each new capital contribution must be either:
► counted as income of the recipient (for example, the lines company), or
► treated as a reduction in the depreciation asset base by the amount of the capital contribution.
6. Environmental Expenditure
This is where all business operating costs are taken into consideration in calculating taxable income, and that the timing of such deductions is appropriate. These fall either under two schemes:
Deduction rates for environmental expenditure - default expenditure categories and deduction rates, application dates, default expenditure categories and amortisation rates, other changes and category-specific deduction rates. The schedule of deductible environmental expenditure is based on general description of expenditure, testing and feasibility expenditure, construction/improvement expenditure, restoration expenditure, and monitoring expenditure.
Environmental restoration account scheme - business activities that cause environmental damage when they discharge contaminant must later restore this damage. This scheme allows businesses to set money aside to cover their monitoring or restoration costs to do this. The IRD then pay interest on the money while it is held in the scheme and refunded when environmental restoration costs are incurred.
Remember, the most important thing is that you need to keep records of all your expenditures to prove your proportion deductions – you must be able to show everything as a legitimate business expense. Maybe staying in touch with Your Refund Limited will help you sort it out and even file your tax returns for you!