Is your business ready to claim expenses and save money?
To help reduce your tax bill, you can offset many of your business expenses against your business income.
The more business expenses you claim, the less tax you must pay. You’ll need to keep good records and hold on to your receipts.
What are expenses
Expenses are the costs you have in the day-to-day running of your business.
At tax time, your total profit (the amount you need to pay tax on) is your taxable income minus the expenses you can claim – so the more you can claim, the less tax you must pay.
Business expenses are:
- day-to-day revenue expenses for running your business, like advertising or wages
- assets you buy, like machinery, computers or tools (these are called capital expenses).
- If you’re registered for GST, your income tax return will exclude GST on your income and expenses. GST is accounted for in your GST return. If you’re not registered for GST, your income tax return will include GST on your expenses only.
Business expenses you can claim for:
- vehicle expenses, transport costs and travel for business purposes
- rent paid on business premises
- depreciation on items like computers and office furniture
- interest on borrowing money for the business
- some insurance premiums
- work-related journals and magazines
- membership of professional associations
- home office expenses
- work-related mobile phones and phone bills
- stationery
- work uniforms
- tax agent’s fees.
Investment property expenses
Investment property expenses you can claim for
If you own an investment property, expenses you can claim for include:
- repairs and maintenance (but not renovations that substantially improve the value of the property)
- professional services fees, like accountants, lawyers or property managers
rates and insurance - mortgage repayment insurance
- vehicle and travel expenses when you travel to inspect your property or do repairs
- depreciation on capital expenses, like whiteware, appliances or heat pumps
- legal fees involved in buying a rental property, as long as the expense is $10,000 or less.
How much you can claim
You can only claim 100% of the cost for an expense that’s entirely for business use.
If you have an expense that’s partly for your business and partly for your private use, you can claim the proportion that relates to your business.
Some things you can only claim half for – for example, some entertainment expenses like client meals and staff functions.
If you spend half the time driving a vehicle to deliver goods and the other half for your own reasons, you can claim 50% of the travel costs for your business.
Working from home
If you’re self-employed or run a business and have areas in your house set aside for work, you can claim a portion of the household expenses. For example:
- rates
- power
- house and contents insurance
- mortgage interest if you own the home
- rent if you are renting the home.
You must keep invoices for these expenses.
How it works
If your home is 100 square metres and your working space is 10 square metres – 10% of the total area – you can claim 10% of expenses that are not just for your business, like your home phone line.
If you aren’t using a separate area of your home for business, you’ll need to consider how much time you spend on your business and the area used.
If you’re registered for GST, you can claim the GST content on home office expenses either:
- as they’re paid, in each GST return period
- at the end of your tax year.
Mortgage interest and rent don’t include GST.
How to claim expenses
Whether you’re a contractor, sole trader or running a business, you claim your business expenses annually in your tax return. Deduct expenses from what you’ve earned from your business during the year.
To claim an expense, you must have a record of that expense, or Inland Revenue may not allow the expense to be claimed.
At the end of the year, your business accounts will need to be completed, totalling up all your income and expenses.
Using an accountant or bookkeeper, or accounting software, can help you do your annual return correctly and claim the right expenses.
Keeping records
It’s easy to let filing and paperwork slip. But keeping good records makes it much easier to do your tax return and will save you time in the long run.
Online accounting software services and mobile phone apps can help you record receipts and keep track of expenses.
You must keep your tax records for seven years. These must be in English, unless you get approval from Inland Revenue (IR) to use another language.
Common mistakes
Avoid these common mistakes when claiming expenses:
- Not separating your business and personal receipts – you need to know which ones to claim against your business tax return and your personal tax return (unless you’re a sole trader).
- Getting rid of your receipts or invoices too soon – you must keep them for seven years.
- Not knowing what you can claim for.
