IRD encouraging you to pay the right tax, by Stewart Russell

Later today Finance Minister Grant Robertson will deliver his first budget post COVID lockdowns.  He is likely to focus on health and wellbeing initiatives - although I would expect to see some plans to address the housing crisis.

But I would not expect to see too many hand-outs or giveaways. 

The Government needs to look at ways of increasing the tax take, to help fund the COVID stimuli they provided last year, including the wage subsidy.

As I mentioned in my article a fortnight ago, the IRD is looking at the construction industry and encouraging tradies to declare all work (including cash jobs) to ensure they pay the correct tax.

Last week the IRD informed tax agents of its latest campaign on the real estate sector.

The IRD is concerned some agents are claiming private expenses and not maintaining logbooks to support vehicle expenses.

To claim a business expense, you must spend the money yourself and it must be directly related to your business activity.

For example, you can claim for distinctive work clothing, such as a uniform with a logo.  However, you cannot claim for normal, unbranded clothing – even if only worn for work e.g. a business suit.

Similarly, you cannot claim a tax deduction for personal grooming such as hairdressing, cosmetics, hair, and skin products.  This is deemed a private expense, despite your job requiring you to be well-presented.

If you have a home office, you can claim a proportion of those expenses.  If it is dedicated office space then you can calculate the percentage of the home used.  If it is space you use personally as well, then you need to apportion your time spent on business compared to personal use.

If you are having a business lunch or dinner with a customer, supplier or employee you can get a 50% tax deduction.  But personal meals are a private expense and not tax deductible.

The IRD is encouraging taxpayers to pay the correct tax, declare all income and only claim expenses genuinely related to their business.

The IRD has explanatory publications and videos on its website providing guidance to help taxpayers do the right thing.

It is likely we will see the IRD dive deeper into other industries where they perceive some taxpayers are not paying their fair share of tax.

If you are concerned whether you have prepared your tax returns correctly or need guidance, front foot the situation and speak to your tax advisor.