What are tax-deductible expenses?

Managing business expenses is an integral aspect of operating a business. However, it's crucial to know what tax-deductible expenses are and which expenses do not meet the criteria. After all, it can the difference between paying the correct amount of tax to Inland Revenue or paying more than your fair share. As business owners, we want to maximize our legitimate expense claims.

The three fundamental rules

In general, there are three fundamental rules to ensure your business expense claims are correct and the risk of Inland Revenue challenge are reduced.

The expense must be for business purposes. Flip this around and what we mean is that the expense cannot be for personal use.
If an expense is incurred for both business and personal use, you can only claim the portion attributable to your business.
Proper records must be maintained to substantiate the expense.

Make sure you know your tax deductible expenses

What's non-deductible for tax purposes?

There are, however, certain business expenses that are not eligible for a tax deduction in New Zealand. Examples of these non-deductible expenses include:

The principal portion of loan and finance repayments.
Fines. For example, for speeding tickets or parking violations related to personal or business vehicles.
Penalties imposed by the IRD for late filings or payments.
The cost of acquiring new equipment, machinery, or plant. These assets may be subject to depreciation over time. What this means is that the asset can be written off over a number of years based on Inland Revenue depreciation rates.
Premiums for life insurance, accident insurance, personal sickness coverage, and mortgage protection insurance.
Most clothing, footwear, and eyewear, except when required for specific job roles such as uniforms or safety boots.
Legal expenses related to capital acquisitions.

Summary

As a rule, if a business expense directly related to your taxable income, you should generally be able to claim a tax deduction for it.

Examples of everyday business expenses that may qualify for tax deductions include:

Vehicle expenses, transportation costs, and travel for business purposes.
Rent payments for business premises.
Depreciation on assets.
Entertaining clients. Read more entertainment deductibility in our article: Entertainment & Gifts
Bank and loan fees.
Interest on borrowed funds for business purposes.
Certain insurance premiums e.g. public liability, professional liability, business assets.
Work-related publications like trade/professional journals and magazines.
Memberships in professional/franchise/trade and retail associations.
Home office/workshop expenses. Read more about claims in our article: Home Office Claims for Business Owners
Work-related mobile phones and associated bills.
Postage, Stamps & Stationery.
Work uniforms. Read more about work clothing in our article: Tax Deductible Clothing
Fees paid to tax agents.
Travel on business. Read more about this in our article: Claiming Travel Expenses in Business

The specific amount of deduction and the timing of its claim may vary depending on the nature of the expenses.

It's important to note that this list of tax-deductible expenses is not exhaustive.

We are only a phone call away

If you are interested in optimizing your business expenses and tax efficiency, we are here to assist you.

Please reach out to us to discuss your expenses and tax-related costs, and we will work with you to identify relevant reliefs, incentives, and allowances that can be leveraged. We have been Chartered Accountants for Auckland (and beyond) for years! – 09 262 0726.