What tax deductions can you claim as a business owner?

New Zealand has officially entered a recession, and as a business owner, you’re likely feeling the pressure of high inflation and rising borrowing costs. Reducing your tax bill legally and effectively is now more critical than ever. Here’s a guide to help you maximise your tax deductions.

1. File your tax returns on time

Delaying the filing of your GST and income tax returns to avoid immediate tax bills can backfire, leading to penalties and interest charges. The IRD currently charges 10.91% interest on outstanding tax bills, making it costly to delay payments. Submitting your tax returns on time to avoid these additional expenses and keep your finances on track is essential.

2. Maximise the expenses you are entitled to claim

Expenses incurred during the normal course of running your business are deductible. These can include:

  • Home office expenses: Deduct a portion of your mortgage interest, utilities, and insurance.
  • Motor vehicle expenses: Claim costs related to business use of vehicles.
  • Legal expenses: Deduct up to $10,000 in legal fees annually (more in some cases).
  • Entertainment expenses: In certain circumstances, it may be subject to the 50% limitation rule.
  • R&D expenses: Deduct eligible research and development costs.
  • Employee-related expenses: Include incentive payments and redundancy payments.

Additionally, if you unfortunately incur use-of-money interest imposed by the IRD, you can claim it in your tax returns.

3. Claim the credits you may be entitled to

Many business owners might not be aware of some credits they are entitled to claim, such as the Research and Development Loss Tax Credit (RDLTC) and the Research and Development Tax Incentive (RDTI). These tax incentives are designed to support businesses conducting eligible R&D in New Zealand.

  • RDLTC: If your business incurs losses and meets other conditions, you may be able to cash out your business losses early by applying for this credit.
  • RDTI: It offers a tax credit at the rate of 15% of eligible R&D expenditure. To claim RDTI, you need to be an eligible entity, conduct eligible research and development activities, and incur eligible expenses. Unlike RDLTC, RDTI requires approval from Callaghan Innovation, which means your activity needs to address uncertainty or create new knowledge in a systematic manner.

It is critical to note that you cannot claim these credits retrospectively, and the IRD does not accept late applications.

4. Employer contributions

Employer contributions to retirement schemes, such as KiwiSaver, are deductible under the Income Tax Act 2007. These contributions not only reduce your taxable income, but also help to attract and retain quality employees. Additionally, contributions to employee health plans and other benefits can be deductible.

Navigating tax deductions can be complex, but the potential savings make it worthwhile for New Zealand business owners. By understanding and effectively utilising deductions and credits as outlined in tax law, you can significantly reduce your taxable income. Always consult a tax professional to ensure you comply with current legislation and maximise your benefits.

Whatever your query, we’re here to advise you, just contact us.

If you don’t know where to begin, want to talk through something, or have a specific question but are not sure who to address it to, fill in the form, and we’ll get back to you within two working days.

  • This field is for validation purposes and should be left unchanged.