New Government Policies regarding Expenses

Entertainment Expenses

The old rules have changed. Unless the expenditure has a direct link to promoting your business, it's not claimable. Meals out with you and your wife/partner cannot be claimed as a business expense.

According to IRD, the common practice of a Real Estate Agent giving wine as a gift is also not allowed as an expense, and the fact that IRD are conducting reviews on Real Estate Agents currently just for this underlines this new approach.

IRD also takes the view you would normally have to cook a meal regardless of whether you are at work or at home, therefore no work meals are claimable unless, of course, you’re travelling and at least four hours from home. This would then come under travel costs.

Financial Statements for a Trust

For business or family:

There remains a misconception by some who believe the management of a Business Trust is different to the management of a Family Trust. Section 45(c) of the Act requires Trustees to keep records of trust property that identifies the assets, liabilities, income and expenses of the trust. While you have flexibility depending on how complex the trust is, the records must still be maintained.

Sometimes you need to start looking back to tidy some things up. It is more important to clear things up and get it right going forward. If you are good with paperwork, start working it out, if not seek help. The important part is you get it done.

Common error – claiming GST on FBT

For those of you who prepare and file FBT returns on behalf of a GST-registered employer, you will be familiar with the GST on FBT adjustment that forms part of the FBT return. The adjustment itself is straightforward and involves calculating GST on the gross taxable
benefits that are subject to GST, and including this as part of the FBT payable. However, a very common misunderstanding is that this GST amount is then able to be claimed in the GST return.

A benefit provided to an employee (e.g. a Christmas gift) is deemed to be a taxable supply for GST purposes (akin to a sale). The GST adjustment in the FBT return is the mechanism by which the GST on the deemed supply is paid to IRD. Another way to think of it – when the
employer originally acquired the Christmas gift the GST was claimed on purchase. However, because the gift is consumed privately (i.e. not used in the business), the GST shouldn’t be claimed and the GST on FBT adjustment is the mechanism to reverse the original claim.

It is common to see the words “GST” and split the total FBT payable between the two taxes for coding purposes, resulting in the GST being re-claimed in the next GST return. But this is incorrect – it is akin to claiming GST on a sale.

HAVE WE GOT YOU THINKING?

Give us a call on (04) 563 6965 or email: dennis@taxman.co.nz or shawn@taxman.co.nz

Keep an eye out for April’s article!