Business Expenses Explained

What are business expenses?

Business expenses are the costs that you bear to keep your business running from day-to-day. Over the financial year, you track and record the expenses that were necessary for your business, so that at tax time you can claim them back.

Business expenses include the operational costs of running a business as mentioned before, and capital expenses – the assets bought for the business like computers or furniture.

These can include:

• Business supplies

  • Computers

  • Furniture

  • Stationary

  • Workbooks

  • Tools 

• Transport expenses:

  • Petrol payments

  • Vehicle costs

  • Business travel

• Insurance payments

• Association memberships

• Premises expenditure

  • Rent

  • Power

  • Water

• Marketing spend

• Entertainment

• Industry-related newspapers and magazines 

• Legal fees

Why should you claim business expenses?

It is important to claim back your business expenses because, in New Zealand, income taxes are based on this model:

Image credit: Business.govt.nz

As the diagram above shows, all of the business expenses you claim at tax time, reduce your total revenue – otherwise referred to as your full income. Subtracting your business expenses from your full income results in your ‘taxable income’.

As tax rates in New Zealand are tiered, claiming your business expenses could change the percentage you are taxed at. However, the amount you can claim on expenses varies depending on what they are and what they are used for. 

In New Zealand, you can only claim 100% of an expense if it is completely for business use. Expenses that aren’t fully exclusive to business use, can only be claimed for the portion applied to the company.

For example; if you are a Real Estate Salesperson and use your vehicle to travel to open homes and client meetings half of your time but use it for personal travel the other half, then you can expense 50% of your fuel bill.

Inland Revenue (Te Tari Taake) specifies that you should keep authentic records of your expenses for 7 years, and requires you to keep tax invoices of all purchases over $50 if you are claiming them within your GST return. Records should also include evidence of payment like invoices and receipts from the till.

What if you work from home?

In our ever-changing environment, expenses can also be claimed for work-from-home supplies such as:

• Power

• Rent or mortgage payments

• Home insurance

• Supplies needed to get work done.

It is important to note that the amount claimed for household expenses (not office supplies), will only be a portion of the full invoice. This is because your home is not solely used for business purposes. 

The IRD explains that you can calculate your claim allowance by the size of your workspace in relation to the size of your house. 

“If your home is 100 square metres and your working space is 10 square metres — 10% of the total area — you can claim 10% of expenses that are not solely for your business, eg your home phone line,” they wrote. 

How can RIPA Expenses help?

If you’re using the RIPA Expenses app, all you have to do is input the pre-loaded expense code (your codes, not ours) and comment for each expense.

Whether you’re uploading a photo of a receipt, or (even better) using one of our integrated Point of Sale partners, we handle all the other information gathering. With 100% accuracy every time – you won’t have to finalise or check an expense entry again.