What qualifies as a business expense?
You can claim a wide range of the expenses incurred as a result of operating your business, provided you keep sufficient records during the year. In this article we will try to give you an overview of the most common expenses you will incur and therefore need to be a part of your small business accounting.
1. Mileage Rate/Motor Vehicle
An employer can claim the cost of reimbursing an employee when they use their private vehicle for work. If you are self-employed, you can claim the cost of using your motor vehicle for business purposes. A logbook must be kept for a three month term to record business and non-business use. This must be done every three years, or if you change vehicle or type of business.
When a company owns a car, it claims all the expenses without making a private use adjustment. However, there may be a fringe benefit calculation necessary if the vehicle is made available for private use.
2. Use of Home
If you have an area set aside in the family home for work purposes, you are able to make a claim for that portion of the household expenses. The area set aside must be used principally for business use such as an office or for storage of stock and vehicle and must keep records of the expenses to claim.
Repairs and maintenance
Insurance (house and contents)
Monthly monitoring charges of your security system
Depreciation on capital items used in the home for business purposes (eg: computer, office furniture and fittings, shelving)
Rent of the premises (if you rent rather than own) – please note that mortgage interest and rates are not applicable.
3. Home Telephone
If your home is the centre of operations for the business, you may claim a deduction of 50% of the residential line rental. In addition, you may identify and claim the business related toll/mobile calls.
If you have a separate commercial and residential line rental, you can claim the full cost of the commercial line but none of the residential line. You can also claim 100% of cell phone and internet costs if they are for business use.
Call your accountants in Auckland for more details on: 09 266 8379
4. Travel Expenses
A deduction is allowed for work-related travel including:
Travel between business places
Travel to acquire plant (which may be treated as capital and added to cost of plant)
A deduction is not allowed for travel between your home and usual place of business, unless your home is used as a work base.
The best way to ensure you have sufficient evidence of the business relationship is to make record of the nature of the trip and its relationship to your business. Keeping a diary is one way of doing this.
Claimable costs include:
Air travel tickets
To ensure the highest level of deductibility (it may be necessary to split costs between personal/business), keep a record of:
Letters of introduction
Any diversion for personal purpose
All items of expenditure
(Please note – no GST will be claimable)
An itinerary of your trip may help to establish what percentage of travel was for business use.
5. Rent and associated costs
If you pay rent for your business premises you should also claim power, phone and any other expenses related to the premises.
6. Business supplies
Including stock purchases, raw materials, stationery and office supplies, cost of repairs to business fixed assets or premises, replacement of small asset items under $500+GST.
Staff Xmas party costs
Gifts for NZ clients
Business lunches in NZ
Morning tea provided on employers premises for all employees
Transport costs for employees to attend staff Xmas party
Entertainment consumed overseas
Gifts to staff
Light meals provided to employees at lunchtime meetings
Friday night drinks for employees
Sales staff meal costs while out of town
Corporate box/season pass
Subscriptions to sporting clubs
Contact us at Citywide Accountants Auckland for more information!
8. Premiums and levies
Business insurance on:
Building and contents for the business premises
Accident compensation levies
Income protection may be deductible, if the benefit is taxable
Please note – life and health insurances are not deductible.
9. Wages paid to employees
Wages paid to shareholders where PAYE has been deducted and declared to IRD; this does not include drawings.
11. FBT paid by Companies
12. Fixed Assets Items over $500+GST are capitalised then depreciated.
This spreads the cost of the asset over an estimated life of the asset. The depreciation is then claimed on an annual basis. Buildings are no longer depreciable but the chattels in the building are. Please keep a separate list so that the maximum depreciation can be claimed. There is depreciation allowed on the fitout of a commercial building.
13. Professional fees
These include accountancy, legal (in most circumstances), consultancy and management.
14. Personnel costs
These include training, seminars, protective clothing, branded uniforms and dry cleaning expenses for protective clothing/branded uniform.
15. Miscellaneous costs
These can include:
Finance charges re business loans or hire purchases
Hire of equipment
Interest (bank, hire purchase, loans)
Please note – this is not a complete list of all expenses claimable in all circumstances. There will be some costs claimable only for some businesses in some circumstances.
Please feel free to discuss with us, particularly prior to the purchase of major expenditure.
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