Net income or net loss is calculated by deducting annual allowable deductions from the total amount of gross income for an income year.
Annual allowable deductions are the sum of all amounts of allowable deductions incurred in an income year.
Only expenditures that relate to business will be an allowable deduction.
General Overview of Expense Claims: Generally speaking, an item or service that is purchased in a course of carrying out business activities is deductible – meaning that an item or service purchased for private use or is a substantial asset will not be deductible. However, when expenses are not completely for business use, you can claim an appropriate portion of the expense.
Employment
Expenditure from deriving salary or wages is not deductible as it has not incurred for business purposes.
Entertainment
Food, beverages, recreation, and related accommodation and transportation for business activities are 50% deductible.
The following expenses are 100% deductible:
- Food or beverages consumed while travelling on business;
- Food or beverages consumed at a conference or educational course;
- Overtime meal allowance;
- Morning or afternoon tea provided during work hours;
- Sponsorship deals;
- Functions or trade displays to advertise or promote a business, goods or services;
- Food or beverage samples for advertising purposes;
- Entertainment reviews;
- Entertainment provided by an entertainment business;
- Entertainment provided for charitable purposes;
- Entertainment provided outside New Zealand; and
- Entertainment that is taxable to the recipient, or is subject to FBT.
Interest
Only interest for funds that are borrowed to purchase business assets are fully deductible – meaning interest for funds that are for private use or a use that does not produce income is not fully deductible. Portion of interest relating to the income producing use is deductible.
Trading Stock
Reduction in the opening value of trading stock is deductible. The value of trading stock is calculated by measuring the difference between the opening value of trading stock and the closing value of trading stock.
Trading stock includes:
- Livestock; and
- Products manufactured, produced, or acquired for manufacture, sale, or exchange purposes.
Donations
A third of donations above $5 are claimable.
Bad Debts
Bad debt that is written off is an allowable deduction – they can be wholly or partially written off.
Professional Services
Expenses from legal, accounting, or other professions alike are deductible, provided that they were a part of the business activity.
The following activities are not deductible:
- Forming, registering, liquidating, or selling of business;
- Acquiring a licence for the business;
- Altering the capital structure of the business; or
- Drawing up a partnership deed, or a trust deed
Bursary Payments
Bursaries or payments alike offered by employers to attract staff are deductible – whether paid to, or on behalf of, an employee or for a prospective employee on condition that they stay with the employer for a stated amount of time.
Penalties
Expenses such as penalties, bribes, use-of-money interest charges, and income tax are not deductible – including lawyers’ expenses in defending criminal or civil penalties.
