NZ Taxation Advisory Blog

Inland Revenue's Interpretation Statement IS 14/04 provides clear guidance on whether various company expenditures are deductible under the Income Tax Act 2007 (ITA 2007). Principles of Deductibility The statement highlights three main principles for determining deductibility under the ITA 2007: 1.Capital and Private Limitations (Para 25) : Expenditures of a capital or private nature are not deductible. For instance: Registering a company and liquidating a company are considered capital in nature and, therefore, not deductible. 2.General Permission (Para 27) : For an expense to be deductible, it must have a clear nexus with income. This means the expense should directly contribute to earning assessable income. Ongoing operational costs, provided they have a  nexus with income , may qualify  as deductible. 3.Apportionment: If an expense serves both income-earning and non-income-earning purposes, it must be apportioned accordingly. Application to Share Market-Registered Companie...

When filing a company's income tax return in New Zealand, the Inland Revenue Department (IRD) requires information on the balance of the shareholders' current account. This is an essential aspect of ensuring tax compliance and accurately reporting financial activities. What Is a Shareholders' Current Account ? A shareholders' current account reflects the transactions between a company and its shareholders. These accounts can show either: Credit balances: When a shareholder has contributed more to the company than they have withdrawn. Debit balances: When a shareholder has withdrawn more from the company than they have contributed. Companies must ensure the accurate recording of contributions, withdrawals, and other shareholder-related transactions. The balance provides insight into whether shareholders owe money to the company or vice versa, and may have tax implications. Links Shareholders' Current Accounts Overview

Financial Reporting : Governed by the Financial Reporting Act 2013 The Financial Reporting Act 2013 establishes the External Reporting Board (XRB) as the authority responsible for financial reporting standards. Key aspects include: External Reporting Board (XRB): The XRB is tasked with issuing financial reporting standards and ensuring these standards align with global practices. Financial Reporting Strategy: The XRB develops a comprehensive financial reporting strategy to guide the preparation and presentation of financial statements. Tax Reporting : Governed by the Tax Administration Act For tax reporting purposes, the Tax Administration Act 1994 provides a different framework. Key features include: Order in Council: The IRD relies on Orders in Council to set specific tax reporting requirements. These are regulations issued by the Governor-General on the advice of the Executive Council. IRD Requirements: The IRD has separate guidelines for tax-related financial statements, focusing o...

Different accounting software uses varying classifications, which businesses must adapt to for consistency and clarity. Xero categorizes expenses into three main types: Cost of Goods Sold (Direct Costs) Overheads Expenses MYOB, on the other hand, uses a simpler classification: Cost of Sales Expenses The classification of certain expenses, such as lease, energy, freight, and warehousing, often varies by business. These costs may sometimes be included in the Cost of Sales or classified differently depending on the company’s accounting policies. Consistency in classification is critical to ensure long-term comparability. Overheads Overheads refer to expenditures that cannot be directly traced to producing a specific product or service. Unlike operating expenses such as raw materials and labor, overheads include: Administrative Overheads: Office supplies, salaries for administrative staff, etc. Manufacturing Overheads: Factory utilities, maintenance, etc. Overheads can be further categoriz...

It’s important to understand the distinctions between contractors and casual employees, as their roles, responsibilities, and entitlements differ significantly. Contractors Contractors are not classified as employees. They operate independently, bringing their own tools and equipment to complete the job. One of the key advantages of hiring a contractor is their autonomy—they decide how to complete the work by the agreed deadline. This flexibility often allows contractors to work from any location and choose hours that suit them best. However, this also means they are responsible for managing their own taxes, insurance, and other business-related expenses. Casual Employees Casual employees, on the other hand, are hired on an as-needed basis. They are not obligated to accept every offer of work, providing flexibility for both the employer and the employee. Despite their irregular work patterns, casual employees are still entitled to certain benefits, such as paid leave. In cases where wo...

As more businesses provide remote services to New Zealand, particularly from overseas, it's essential for both businesses and consumers to understand how Goods and Services Tax (GST) applies in these situations. This is especially true for digital services such as video conferencing platforms like Zoom or software subscriptions. When is GST Charged? Overseas businesses providing remote services to New Zealand are generally required to collect GST only when supplying these services directly to resident consumers . This means that if the service is being supplied to a business (Business to Business, or B2B), GST is not applied. In other words, GST does not apply to transactions between businesses, but it does apply when the service is provided to an individual consumer residing in New Zealand.  Links IRD: GST for Overseas Businesses – Supplying Remote Services into New Zealand GST for Overseas Businesses: A Guide for Suppliers

The New Zealand Inland Revenue Department (IRD) has provided clarity on the deductibility of certain company administration costs through Interpretation Statement IS 14/04. Annual Return Fees (Companies Office) Every year, companies must file an annual return with the New Zealand Companies Office. This return confirms the company’s details, such as directors, shareholders, and registered office address. The filing of this annual return comes with a fee, which is considered a statutory return fee. IRD's Interpretation Statement states the tax-deductibility of statutory return fees. Links Income Tax - Deductibility of Company Administration Costs (IS 14/04)