What business expenses can you deduct in your income tax return? It depends on your business structure, but includes things such as:

• ACC levies
  
• accounting fees
• bank charges
  
• contractor costs
• depreciation (wear and tear)
• entertainment (be careful!)
• home office expenses
• lease or rental costs
• legal fees
• motor vehicle expenses e.g. WOF, registration, repairs, insurance, FBT
• purchases (for business purposes e.g. stock, materials)
• travel e.g. fuel, parking, business travel
• stationery, printing and office costs
• software e.g. Xero, MYOB
• telephone and internet

This is not an exhaustive list, but you get the idea.  It's good to check out the resources here and if you are not sure if something can be claimed, or what percentage can be claimed, ask your accountant or contact us.

In addition to the measures announced (see this article and this article), the government recently announced several new measures (this article was updated 22/05/20:

TAX LOSS CARRY-BACK SCHEME
IRD say "Businesses expecting to make a loss in either the 2019/20 year or the 2020/21 year would be able to estimate the loss and use it to offset profits in the past year. In other words, they could carry the loss back one year. This change means we could refund some or all the tax already paid for the year they were in profit. It means firms could cash out all or some of their losses in 2019/20 or 2020/21. Without this change, firms would have to carry forward any loss to a year when they make a profit."

Points to note:

• The loss carry back rules apply to ALL businesses whether trading individually or through a company.
• You will be able to estimate your 19/20 (FY20) financial year provisional tax to NIL based on estimated 20/21 (FY21)  financial year losses. 
• IRD will update their systems to allow the provisional tax already paid at 28 August and 15 January to be refunded.
• You don't have to wait until FY21 accounts are finalised to access the losses.
• If you think there's going to be a loss for this year, let us know and we will include a reasonable estimate of that in the FY20 calculations.
• You do not need to rush to re-estimate your provisional tax before 7 May. Part of the proposed law change would make it possible for you to re-estimate it after the date of the final instalment. This will give you more time to work out any estimated loss for the 2020/21 income year. 
• Just be aware that if you get it wrong, use of money interest will still apply; we are told a new rate will be announced soon.

Some caveats: 
​If you are unable to pay this tax on time because of the effect of COVID-19 on your business, IRD expect that you will pay this tax as soon as practicable. In such cases our recommendation is that you contact IRD now to let them know you can’t pay the tax on time and negotiate a payment plan.  That will typically be an arrangement to pay the tax over a number of months (or fortnightly or even weekly), and possibly with a deferred payment start date.  As part of that process, although this is not specifically mentioned on the IRD website, a pre-requisite may be that you have applied to your bank for some help under the business finance support package underwritten by Government. The advantage of talking to IRD as soon as possible is that you will most likely qualify for remission of late payment penalties and interest.

If you would like us to talk to IRD on your behalf, please let us know at your convenience.  We will then contact you to discuss the best approach, and whether or not to use this or tax pooling.

* IRD can remit Use of Money Interest (UOMI) and penalties; criteria are:

• tax is due on or after 14 February 2020, and

• the taxpayer’s ability to pay by the due date, either physically or financially, has been significantly adversely affected by COVID-19.

The IRD Commissioner may exercise her discretion to remit the interest if the taxpayer has contacted the Commissioner as soon as practicable to request relief and has paid the outstanding tax as soon as practicable - right up until 25 March 2022.

To prove you've been "significantly affected", you'll likely need to provide at least three months’ banks statements and/or credit card statements, a list of aged creditors and debtors and probably profit and loss statements and/or balance sheet from your business.

Alternatively, you might also be able to apply to

• pay the tax via installment (possibly with a deferred payment start date);

• have IRD partially or fully write-off the debt due to serious hardship, with payment of the remaining tax by installment or a lump sum;

• allow a partial payment, and write-off the balance.

You would need to provide similar proof, as mentioned above.

Here are the main steps involved, and an approx. % showing how far through we are at each point. The chart starts at the bottom, and the top is 100%, tax returns filed and assessed by IRD!

Here is a detailed description of each part of the process

1. First, we email you a link to the online tax questionnaire. We ask you to complete this within 7 days of receipt.
2. We send you an invoice via Xero.com for 50% of the job. (Some small jobs are billed 100% up-front).
3. We'll then send you a copy of your completed questionnaire, along with a checklist and further instructions
4. You then either email your info to mytaxinfo@epsomtax.com or send it via courier (let us know and we'll send you a bag to return to us. You just call the courier on their toll free number, and they collect it from wherever you tell them to).  Once we receive your info, we then scan it and courier it back to you after the tax returns are filed.
5. ​By now, it's the first of the month, you've sent us all of your info, and we then copy this to secure online storage.
6. We start coding your info up to trial balance stage; the second 50% invoice is issued, usually a 14-day account.
7. Financial statements are compiled.
8. A checker reviews the draft financial statements and any adjustments made. 
9. Drafts are then sent to you for review (see how to understand your financial statements), adjustments made, and then we send you the final version of the financial statements. 
10. Next, tax returns are queued to be filed online with Inland Revenue and checked again by the filing and checking team.
11. We send you a copy of these returns for your records and for you to sign and return back to us.
12. IRD processes the returns.
13. About a month later, we process the donation tax credit forms.

​

As a rough guide, from the date of invoice issuance to you having the draft financial statements in your hands, we aim for 8-9 weeks, subject to this disclaimer: these timeframes are indicative only and at peak times of the year e.g. May-October, it will often take longer.  

Before Processing Starts

• 2-3 weeks before - tax questionnaires sent out via email
• 1 week before - 1st invoice sent out via email

Processing Month
We'll advise you in February via email when this is.

• 1st of the month - all data should be provided by you by this date; processing starts
• 3-4 weeks later - work completed to draft stage; second invoice issued
• 7 working days later - 2nd invoice paid, draft financial statements sent to you for review
• 7 working days later - changes made as required, confirmation received from you to file with IRD
• 1-2 weeks later - tax returns filed
• 1-12 weeks later - IRD processes returns.

We trust this helps take some of the mystery out of the process. Please contact us with any questions!

Other FAQs you might have:
RENTAL PROPERTY: WHAT RECORDS DO YOU NEED TO KEEP?
USING ACCOUNTANCYONLINE.CO.NZ/MY TAX QUESTIONNAIRE
HOW DO I DOWNLOAD TRANSACTIONS FROM MY BANK'S ONLINE INTERNET BANKING?
WHAT IS XERO.COM?
COMMON QUESTIONS ABOUT YOUR TAX RETURNS
COMMON QUESTIONS ABOUT YOUR FINANCIAL STATEMENTS

Is selling your home taxable?, Or in other words, do you have to pay tax when selling your home?

Buying and selling your private or family home typically is not taxable. However some are looking to purchase a family home with the intention of reselling it in time, and a few earn their income this way – buying and selling.

If you have established a pattern of purchasing and then selling your “family home,” this could be considered as property speculation or dealing for tax purposes.

So, how do you know whether you are considered a property speculator, dealer or investor?  Click here for the IRD definition

Things to consider in answering the above question:

• what was your intention when you bought the property?
• what pattern have you established in terms of property transactions?
• are you (and if so, how) associated with a developer, builder or property dealer?
• will the Bright-line Test* apply?
• will you be affected by rezoning?

​How do you know if selling your home will be taxable?  Think carefully about the answers to these five questions.

“Ok, so I just have to hold onto a property for a really long time and then I’m not considered a dealer?”  No.  The amount of time you hold the property is immaterial.  It’s your intention at the time of acquisition.If you bought a property with the intention of reselling it, then any capital gain that you make on the sale taxable.

“Right-o.  So, is there some sort of level?  That is, my first couple of properties are tax-free and then I pay tax after that?”   Ahhh… no.  Again, it’s intention, patterns and associations – not numbers of properties sold.

“Great.  It looks like I will have to pay tax then.  How do I figure that out?”  The IRD have a great resource here – or you can contact us.

* For a definition/more info please see this article at the IRD Tax Policy website

If you have to pay provisional tax, then there is a good chance you're using tax pooling, courtesy of Tax Management NZ (TMNZ).

We've collected a few common questions here to help. If your question is not here, please see this page or contact us.

Q: IRD are calling and texting me saying my tax is overdue?
A: Correct. This is to be expected. IRD have no visibility of what money you've deposited into the Tax Management NZ tax pool until it is actually in the IRD bank account.

Q: So what do I say to IRD then? I'm a bit freaked out by this!
A: Here's what to say:

1. You are using tax pooling via Tax Management NZ
2. Can they please note this on your file
3. Ask IRD to call us as your accountants if they require any further information

You make your payments into a bank account administered by an independent trustee, Guardian Trust. Guardian Trust also oversees the TMNZ tax pool account at IRD in which your date-stamped payments are held. At no stage does TMNZ have access to your funds.
​
You can view your account online and request that any amounts held in the tax pool be transferred to your IRD account at any time.

If you would like us to arrange your tax pooling or for more information, please see this page or contact us now.

This page is not in alphabetical order, but in order of Top Questions first:

Q: When does my tax return have to be in i.e. filed with IRD?
A: If you have an Extension of Time to file, the date is 31 March. If you are linked to a Tax Agent or Accountant, then usually you will have this extension.  Note that the IRD must receive your tax return by this date i.e. if you post it on this date, it will be late.

Q: Cool, so I can send my info to you guys about the middle of March and that will be ok then? That gives 2 weeks to get it sorted, right?
A. Sorry, but no. In order to get the figures right, there is a process of many eyes checking your financial statements/tax return/s. So we recommend that you allow 5-6 weeks at least for us to collate, code, compile, check and file your financial statements and tax returns.

Q: I didn't earn any income last year, but I am a shareholder in a Look Through Company. Do I have to file a tax return?
A: Yes.  You will have income or loss from the LTC and this has to be declared to Inland Revenue via a personal tax return.

Q: My rental is running at a loss. Why don't I get a tax refund anymore?
A: You can blame the government for that. They changed the rules so that losses from rental residential property, are "ring-fenced". That means they can only be offset against profits from the same kind of income.  Read more here. What do do about it? Read about our recommended strategies here.

Q: I don't see any impact of the LTC losses to the final tax figure?
A: You'll see your LTC losses (if applicable) shown in box 19E (on the personal tax return, or IR3).

Here is a typical Profit & Loss report. You can see the Profit hi-lighted in yellow, and the Expenses hi-lighted below (also in yellow). Then at the bottom, you can see that the result is a Loss - which is why it is written in parentheses (brackets).  

This loss amount (or negative amount) is then put on your tax return. It offsets other rental income you have received.  In this sample, assuming the person is being taxed at 33c in the dollar (ie they earn over $70,000 per year), then they could offset the loss of nearly 11k against other rental income (or if they have none, then this loss would be carried forward to future years).

All sources of income are added, e.g. wages, interest, dividends. Next, all sources of loss are added, e.g., LTC losses.  Then tax is calculated on the sum of all of these figures.  After that, tax that you have already paid is deducted, e.g., RWT, PAYE, provisional tax. The resulting figure is either a debit (tax to pay) or a credit (a tax refund).

Q: Why does the IR3 (personal tax return) you sent me show a dividend of nearly $500 from Entrust (formerly the Auckland Electricity Consumer Trust or AECT)?  I only got about $300-something?
A: The Entrust dividend is shown on the tax return as follows

• gross dividend
• less dividend imputation credits
• less dividend withholding tax

Using this formula, we arrive at the $300-something you received. You can see the exact breakdown here

Q: Why does the tax return show this? I wanted the refund to be credited to my bank account?

A: That's exactly what this means.  It says, in effect: "do you want to receive the refund in cheque format?"  The answer is "No."  IRD only gives one other option, and that is a refund to your bank account.

Q: Does my LTC get a refund as well as me?
A: No. If you have an LTC, the refunds go to you. The company is Looked Through at tax time, hence the name Look Through Company.

Q: Is the amount shown as a refund what we're going to get?
A: Probably. All returns filed are subject to review by IRD, and sometimes they don't agree with our calculations. There are a number of reasons for this:

• debts or credits we may not be aware of
• keying errors by IRD/ourselves
• other factors

However, don't panic. All errors, wherever they are made, can be easily rectified.

Q: What's an IR3 form? What's an IR526?  How long does it take to file a return?
A: That is what the personal tax return form is called: an IR3. (If you are not NZ tax resident, the form is an IR3NR). The actual filing online takes about half an hour. Then IRD processes it, which can take anywhere from 1 week to 12 weeks or longer.  Once they’ve processed it, you then receive your tax refund.

The IR526 is the donations rebate form; it has to be processed separately. Note that you can now login to myIR and upload your own donations during the year, and IRD will process them once your personal tax return is done.

Q: I own a rental property, or I'm self-employed. Why is ACC sending me a bill?
A: If you received rental income in NZ and you didn't use a property manager, ACC can still charge you. And if you are self-employed, you have to pay ACC Employer and Earner Levy

These questions are based on questions asked by customers. We'll be adding more examples to this page as they occur.

Other FAQs you might have:
RENTAL PROPERTY: WHAT RECORDS DO YOU NEED TO KEEP?
USING ACCOUNTANCYONLINE.CO.NZ/MY TAX QUESTIONNAIRE
HOW DO I DOWNLOAD TRANSACTIONS FROM MY BANK'S ONLINE INTERNET BANKING?
WHAT IS XERO.COM?
WHAT'S THE PROCESS FOR MY TAX RETURNS?
COMMON QUESTIONS ABOUT YOUR FINANCIAL STATEMENTS

You might have noticed that your invoice is a little bit more this year. Why?

Did you buy another investment property during the year? If so, that requires a bit more work to account for that, usually a couple of hours.

It might be a price increase.  ​We haven't raised our prices in 3 years; meanwhile the CPI has gone up, and up. So we adjusted the base price by 2.8%. This is actually less than inflation, so doesn't really reflect the eroding dollar. We've absorbed some of that cost ourselves.
​
At the same time, accountants from this year onward will be required to comply with new AML legislation,  which we estimate will add at least 1-2 hours per year to costs. However, we can't charge all that time. So we've added $55 to try and offset that cost a little bit.

We think this is fair/reasonable, but if you have any concerns, please contact us.

What does this have to do with your tax? Well, we might have asked you to supply information, clarify a request etc etc. We know you're busy!  But we don't hear from you promptly. Instead, it drags on and on.

Frankly, that doesn't help you, us, anyone!

So, what we ask is this
1. stop for a moment,
2. send through the info,
3. get their tax refund sooner!

Moral: Stop and sharpen your axe. Work smarter, not harder!

We often get asked if there is a GST component in a Sale and Purchase Agreement for a rental residential property, or if GST needs to be claimed on the purchase of something for the property. 

The answer is no to both questions. Why? Residential rent is viewed as a "GST exempt supply" of services. Exempt supplies are goods and services which are not subject to GST and not included in your GST return.

IRD give these guidelines:

• GST can't be charged on the rent for a residential dwelling. A landlord can't claim any GST on dwelling expenses, such as maintenance, rates and insurance.
• If a residential dwelling is sold as part of a taxable activity, and it was rented for at least five years beforehand, the sale is an exempt supply.
• If a property developer acquires a property for the principal purpose of making a taxable supply and then subsequently rents the property out, a change of use adjustment may be required.

For more info, see this page at the IRD website, or  contact us.

The answer is maybe.  It really depends on your circumstances.

If 

• you are in the business of renting properties, and
• your total legal expenses for the income year are $10,000 or less

then you can claim legal fees. If they are over the $10,000 mark... well, in rental residential property that is highly unlikely!

Please see this page at IRD for more info; remember though it is only talking about rental residential property, as different rules apply for property traders/developers.

As always, if you would like more information or are not sure about your situation, please contact us.

​NB: If you are a property developer or trader, and therefore paying tax on the net profits from the sale of your buildings, then legal fees are one of the things you can claim.