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What Expenses Can I Claim for My Business?

Kai Daniel
What expenses can you claim for your business? Great question. Whether your business is a brand-new baby or you’ve been doing your thing for a while now, expenses and tax returns are two things that can forever feel perplexing. Just like why Rose didn’t make room for Jack on that life raft. But that’s a question for another day. Before we look at the expenses you can claim for your business, let’s look at the why. In short: The more we claim, the less tax we have to pay. Of course, the key question here often triggers a load more questions. Why should you be looking to claim more than your obvious expenses? What’s the difference between a business and personal expense? Who is eligible to claim business expenses? When should I claim certain expenses and how do I do it?

Let’s start with the basics - how do business expenses work?

As business owners, we pay tax on the difference between what we collect as income and what we pay as expenses. Taxes are a part of life - we get used to ‘em. We can, however, minimise them by showing we paid more in expenses.

Here’s a scenario: I collect $100 in sales but it costs me $50 to sell my product or service. I’ll pay tax on $50 worth of profit (28% company tax rate) which is $14. However, if there was an expense I occurred of say $15 (in marketing, home office, car expenses, for example), I then only need to pay tax on $35. At a 28% tax rate, I’ll pay $9.80. That’s a $4.20 saving in tax.

Great! So let’s throw the kitchen sink at it. Literally - can we claim the cost of our home’s new kitchen sink? Not quite. Not all tax-deductible expenses are treated equally and may not be 100% claimable. This mostly comes down to how that expense is used, and whether it’s personal or business-related.

Now before you scroll by rolling your eyes at that seemingly obvious statement, let me stop you for a sec. Things are a bit more complicated than that. It comes down to the nature of your business. For example, say you’re a courier delivering parcels every day. You could go ahead and claim the costs for work-related travel. But if you’re a physiotherapist commuting to your office each day, you can’t claim for that commute. Them’s the rules.

There are some exceptions to the rule but, generally speaking, if the cost is genuinely business-related, meaning it’s contributing to generating an income for the business, then it’s probably deductible. If it’s for personal use or gain, then it’s probably not claimable. 

How organised are my bank accounts?

This is something that often slips through the net when we’re busy running a business. We’re more focused on money coming in than where we’re storing that money - or how we’re spending it. 

Whatever the entity type (Limited Liability, Partnership or Sole Trader), all self-employed people can claim expenses against their business-related income. HOWEVER, the line often gets more blurred when there’s no clear definition between personal and business-related bank accounts. This is the case regardless of entity type or who the bank account holder may be.

It’s easy for business owners to assume that because they own their business, they can interchange between business and personal bank accounts as though they were one account. So, they might pay business tax with their personal funds, or order a birthday gift for their new best mate with their business dosh.

Having clear boundaries with how we manage personal and business-related funds and expenses (starting at bank accounts) is absolutely fundamental to getting the most out of your claimable expenses.  Where it gets a little tricky though is when you incur an expense that is both personal and business-related - something like home/office internet or your telephone bill. When do you claim and how? Cue helpful cost-saving accountant. Cough cough - us.

Book a call with BOM to iron this thing out.

Mixed-use expenses (i.e. the ones causing all the drama)

Shared expenses - usually things like home office expenses - in most cases get included as part of your year-end tax return. They’ll be calculated by working out the allocation of business to personal use.

That means you as a business owner have an important job to do. And that’s keeping a record of all expenses - yep, even mixed-use expenses - for records and calculating purposes. The business-related side gets calculated at the end of the tax year. This means you don’t necessarily get reimbursed for business expenses you paid personally. Instead, this is included in your return to discount your year’s profit. Ultimately, this leads to a tax saving.

Did I miss any claimable expenses?

Before you go sending off your tax return so you can finally tick the box on the most dreaded item on your to-do list, make sure you haven’t missed anything. One common claimable expense that’s often left out of DIY returns is the wear and tear of business-related assets and equipment - AKA deprecation.

As of 17th March 2021, any capital expense (an expense over $1000) can’t be claimed as an ordinary expense. Instead, it needs to be depreciated over a period of time. This means we can spread the cost of that big purchase over several years (even though your pocket might feel the pinch immediately). As a business grows, the number of high-ticket items it holds is often overlooked. Complexity and the effort required often cause us to skip them.

To keep things simple (‘cause that’s what we do), here’s a condensed list of business expenses you can include:

  • As mentioned, motor vehicles and travel-related costs (for business purposes only and does not include commuting to and from work).
  • Rent for business premises (including some rent paid for your home proportioned to your home office).
  • Depreciation (the cost of high-ticket items spread over a period of time).
  • Interest on money borrowed for business purposes.
  • Some (not all) insurance premiums.
  • Membership of professional associations.
  • Home office expenses.
  • Phone and phone bills (Work/business related).
  • Stationery & office equipment.
  • Work-related mobile phones and phone bills
  • Legal expenses.
  • Professional development (if it's related to your business or industry).
  • Uniforms (can be industry-dependent).
  • Bring on Monday Fees (or other professional service fees).
  • Entertainment (depending on the purpose and location, the claimable amount can differ from non-deductible to 100% deductible).

Okay BOM, can you just answer my original question now?

We’d love to say outright which expenses you can claim for your business. Unfortunately, though, there’s no black and white answer. Lots of variables come into play - and expenses for the business down the road might be different to yours.

As a general rule, honestly ask yourself this question: Is this expense genuinely for business purposes that will help derive business income? If you can answer with a confident hell, yeah there’s a good chance the expense is fully deductible. (We said a good chance; this isn’t guaranteed).

However, if the answer is hmm, not sure, probably not, then the expense is likely not claimable. If you’re thinking kinda’ or some of it, BOM, then it most likely needs to be proportioned. The best thing you can do for your business (and your sanity) is to have a professional help you determine which expenses are claimable. 

Your helping hand does a great job explaining what expenses you can claim, how much you can claim, home office proportion calculations as well as a great home office visualisation and quiz.

Curious to what non-business expenses you can claim under your personal return? Well, the cost of Bring on Monday to give you the confidence to file your return as effectively and compactly as possible is one of them. 

Say hey to learn more!

For more check out IRD’s website.

Kai Daniel

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