WHAT DOES TAX-DEDUCTIBLE MEAN?

Sep 20, 2018

We are sometimes asked: what does “tax-deductible” really mean? Does it mean that I get all my money back?  Well…

No.

When an item is ​tax deductible that means that the cost is able to be deducted from taxable income or the amount of tax to be paid.

All purchases are either 100% tax-deductible, partially tax-deductible, or not tax-deductible. A 100% tax-deductible item does not mean you get 100% of the money spent back. It means that you can claim 100% of the cost against your taxable income. A 50% tax-deductible item e.g. phone, means you can claim half the cost against your income.

So, let’s say that you want to put new carpets in your rental property. The cost comes to $4000. This would be 100% tax-deductible. You can claim all of that cost against the rental income the property is earning.

But let’s then say that you are at the supermarket, and you forgot your personal credit card. So you pay for your groceries from your rental property account.  This would not be tax-deductible.


HOW MUCH TAX WILL I GET BACK?

So, how much do you get back when you buy a tax-deductible item?  Well, it depends on how much tax you pay. The maximum tax rate is 33%. So the maximum tax refund is also 33% i.e. You will never get back more tax than you actually paid. So we suggest as a rule of thumb: divide the cost by 1/3. This gives you a rough idea of how much tax you might get back. 

​Of course, tax refunds are subject to things like: were you correctly taxed at your job? Are the property losses ring-fenced so that you get little or no personal tax refund? Is your rental property owned by an LTC, partnership or sole trader that allows losses to be passed to the owners (under current laws) or is it owned by something like a trust or standard company, which don’t?

QUESTIONS

If you have further questions, please place a comment here or contact us.

Recent Posts

NEW TAX RATES IN NZ

Yes! New tax rates in...

SHARE MARKET VOLATILITY AND EFFECTS ON PROPERTY PRICES AND INFLATION

The Interplay of Share Market...

WHERE WILL INTEREST RATES IN NEW ZEALAND GO NEXT?

Where will interest rates in...

RETIREMENT PLANNING – HOW TO ESCAPE THE POVERTY CYCLE

Retirement Planning Strategies to Escape...

RENTAL PROPERTY ACCOUNTANT AUCKLAND

Navigating the Maze of Rental...

THE FOUR KEY ELEMENTS TO INVESTMENT PROPERTY THAT YOU MUST GET RIGHT

What are the four key...

Useful Links

Contact Details

Phone: 0800-890-132
Email: support@epsomtax.com
Fax: +64 28-255-08279

EpsomT​ax.com © 2021