7 top tips business owners should know to reduce your tax bills

In simple terms, the lower your taxable income is, the less tax you have to pay. There are ways to minimise your tax liability by deducting business expenses from your taxable income. ​

Filing the right amount at the right time helps to avoid paying interests or penalties with IRD. For example, the deadline for filing tax returns is 7 July in New Zealand for people without an accounting agent. However, if you’re registered and linked with an accountant or a tax agent, you will be eligible for an extension of time to file your tax return until 31 March the following year. This also means the tax due date is pushed behind.​

Always considering the timing of starting a new business. If you want to start a new business or become self-employed when it’s close to the end of the financial year, consider doing it in the new financial year in order to save on paperwork and tax administration. ​

It’s also important to plan your tax and anticipate future tax liabilities. If you just start your business, it’s a good idea to start a Tax Saving Account as well to save some cash. This would help you to meet your GST and income tax bill when they fall due. ​

You can claim all the expenses helped to generate your business income. ​

Common expenses include, but are not limited to:​

To claim these expenses, you’ll need to keep all the records you have such as receipts or bank statements for at least 7 years in case you’re audited by IRD. It is always good to pay for business-related expenses using your business account so that you have a good electronic copy. But sometimes you may pay for business expenses using your personal accounts. This is when a good receipts keeping system come into handy (e.g., HubDoc), so that you won’t forget to claim those expenses.​

If you are working at home and use some of your house space as an office, you could also claim home office expenses. ​

Vehicle expenses can be tricky. There are various rules around it. However, claiming the right amount of vehicle expenses helps to reduce your tax bill at the end of the financial year. The general rule is if you have a vehicle that’s used solely for business purposes, 100% running cost and depreciation can be claimed against it. ​

 There are different implications on motor vehicle expenses for sole traders and partnerships, compared with companies. ​

As sole traders and partnerships, you need to keep a logbook documenting the kilometers driven and the purpose of the trip. Towards the year end, you can claim the business trip costs. Otherwise, you can also use the kilometer rate on IRD’s website. However, you can’t claim GST on it if you choose to use IRD’s kilometer rate method. ​

For companies, if the vehicle belongs to the company and 100% used for business, then all related motor vehicle expenses can be claimed. However, if the motor vehicle belongs to the company, but available to be used for personal purpose, then the company needs to consider either paying  for  fringe benefit tax, or the expenses for private use need to be adjusted accordingly. ​

Depreciation is a way of claiming back money you spent on the assets purchased (e.g., computer, vehicles, machinery, intangible assets etc). Long story short, it reduces the amount of tax you pay because it is an expense in the profit and loss statement. ​

There are two ways to calculate depreciation. You can either choose to use the straight-line method or the diminishing value method.  Once you made the choice, you can’t switch over to the other one until you fully depreciated the asset.​

When claiming depreciation, it’s important to keep all the receipts and invoices to any depreciable assets for 7 years. Please note, you can’t claim depreciation in the year of sale. ​

Read more: What's depreciation?​

When you make donations to charities, schools or religious groups, you can either get a donation rebate or tax deduction. If you’re a sole trader or partnership, you claim a donation tax credit in your personal return. To be able to claim the donation successfully from IRD, you will need to supply the donation receipts to IRD.​

If you operate as a company of trust, you can claim donations as an expense item. You also need to keep good records of the donation receipts in case IRD requests a copy.​

From 17 March 2021, assets that cost less than $1,000 can be automatically claimed as a deduction. If you’re GST registered, this $1,000 threshold applies to the GST exclusive price of the cost of the assets. If you’re not registered for GST, $1,000 is the GST inclusive price. ​

The cost of any assets you plan to purchase (e.g., office furniture or electronics) under $1,000 might as well be included in this year's budget. ​

You may not be able to use the low value asset deduction rule if you purchase multiple assets each below the threshold from the same supplier at the same time. But this needs to be reviewed case-by-case, and your accountant (e.g. Beany) could help with it. ​

A properly structured business will ensure that you aren't paying more tax than you need to. The common business structures in New Zealand are sole trader, company, partnership, and trust. Different business structures mean different tax rates, profit distributing rules, and so on.​

When choosing the appropriate business structure for your business, consider your long-term goals and your personal circumstances. An accountant could help you to assess which business structure is right for you if you're unsure. ​

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