What can and can’t be claimed as a ‘business expense’ is often a source of confusion for business owners. And even more so for sole traders and contractors, or anyone that uses part of their home for business.
So we thought we would help you out with a handy little list of the most common (but all too often) missed costs that can be claimed….
Vehicle expenses – including repairs, maintenance, petrol, parking, WOF and other running costs. If you use your vehicle outside of work though, you will need to do an adjustment for personal usage. To calculate your personal usage % we simply ask you to keep a log book for 3 months – easy peasy.
Travel – including accommodation and food and drink whilst travelling (provided the travel is for business purposes) Travelling from your home to your office doesn't count as a business expense. But going to a conference in Auckland, or travelling to the South Island to pitch to a client does.
Depreciation on items like computers and office furniture – including your home laptop and office furniture if you work from home, or use your home for work. So whilst you may not be able to claim the full cost of the item when you purchase it, you can claim the depreciation over the life of the asset.
Insurance – including your public liability insurance and a % of your contents insurance if you work from home, as well as others (if it is required or advisable for your business, it might be claimable)
Subscriptions - such as to magazines if they relate to your business activity (so not your Men’s Health or your Women’s Weekly) as well as membership subscriptions of professional associations.
Landline and internet bills - A dedicated business line is fully deductible. If you use your home phone for both calling mum and making sales pitches, you can claim 50 per cent. And the same with your internet.
Work-related mobile phones and phone calls are also deductible.
Work uniforms – you can claim for branded clothing, mandated uniforms, health & safety equipment such as high-vis jackets and personal protective equipment (PPE) like steel-capped boots and masks. Any item of clothing or equipment that is required for you to undertake your work. But you can’t claim for a suit or shirt and tie simply because your company requires you to wear one.
Training, upskilling and personal development - for you and anyone who works in your business. This can include office administration training (such as an Excel course), First Aid training, drivers tests, coaching or any activity that creates or builds on a skill required for your business (so not throwing pottery… unless you are a potter!)
Entertainment expenses – your morning latte or smoko sausage roll are firmly in the 'personal expense' bucket. However, they do become deductible when you're on a business trip. Other ‘entertainment’ expenses are usually 50 per cent deductible - think meetings over a coffee, wining and dining clients, corporate boxes, Friday drinks, etc.
Home Office Expenses
If you use an area of your home for your business, eg your study as an office and/or your garage for storage, you can also claim a portion of these household expenses:
Rates
Power
House and contents insurance
Mortgage interest if you own the home, or
Rent if you are renting the home
How do you work out how much you can claim?
To work out what portion of these expenses you can claim, you need to figure out what % of your home is taken up by your workspace and storage. So as an easy example, if your home is 100 square metres and your working space is 10 square metres — 10% of the total area — you can claim 10%.
If you aren't using a separate area of your home for business, you'll need to take into account how much time you spend on your business and the area used.
If you use your home for business, you can also claim repairs, maintenance and refurbishments/renovations of these areas. Including your garden if it is used by your clients or customers.
IRD also has also created this handy little infographic that might help….
Just remember, if you are going to claim any expenses as a business expense it’s really important that you keep good records to support your claim as without them IRD may not accept them. We recommend either a scan or copy of the invoice or receipt. We use Hubdoc to help our clients keep their paper records up to IRD standards.
And if you’re not sure if you can claim something, ask your accountant! IRD routinely audits new Zealand businesses to ensure compliance with tax laws. And the penalties can be very costly if you have been negligent in managing your tax or record keeping, regardless of whether they are accidental or intentional.
So in other words, it is better to be safe than sorry!
