A guide to what you can and can't claim at tax time
We know that rules about what you can and can’t deduct on tax can get confusing fast. The IRD’s rules in New Zealand around employee tax deductions mean there are typically limited opportunities for you to boost your tax return without getting on the IRD’s bad side.
So, we spoke to Jayesh Kumar, Head of Tax NZ at William Buck, to find out what you should know about claiming work-related deductions come tax-time, and some common mistakes to be mindful when the time of year comes.
What you can claim
In most cases, if you’re an employee in New Zealand, you can’t claim work-related expenses on tax - that’s usually up to your employer. The main responsibility for covering work costs lies with your employer.
Your workplace might reimburse you for certain expenses, such as work-related travel, home office setup and professional memberships, but in these cases, it’s the employer who can claim a tax deduction on these expenses.
However, you can still claim non-business expenses, such as:
- Accountant or tax agent fees: The costs involved in filing your tax return.
- Income protection insurance: These costs are claimable only if the insurance payout would be taxable.
- Commission charged: If you earn interest or dividends, you can claim the commission you’ve paid to earn that income.
- Interest on borrowing for investments: These costs are claimable if the investment brings in a taxable income.
- Use of money interest: This is paid to IRD for late payment of income tax.
The only exception is if you’re self-employed, in which case you can claim far more expenses.
What you can’t claim
Most expenses can’t be claimed for employees in New Zealand as the employment limitation rule denies these. These include:
- Uniforms
- Tools and equipment
- Travel expenses
- Home office costs
Typically, you’d be reimbursed by your employer for these; however, even if they’re not reimbursed, it’s important to remember that you still can’t claim them on tax.
Other expenses not claimable as deductions for tax purposes include:
- Personal or domestic expenses: Commuting costs between home and work, childcare costs and gym memberships
- Fines and penalties: Parking tickets and speeding fines, even if they’re incurred while you’re on the clock.
If you are planning to claim any expenses from your employer, be sure to keep accurate records throughout the year, including invoices or receipts, and detailed travel records.
When it comes to tax, consider using myIR to manage all your tax affairs. This gives you details on your various tax obligations and allows you to speak with the IRD through secure messages, so you’re always up-to-date on what’s owed and when.
Common mistakes to avoid
Whether it’s your first or 50th time filing a tax return, we know sometimes genuine mistakes slip through the cracks. Here are common ones to look out for:
1. Failing to disclose other income
Be sure to include all your income for the financial year on your return, even if it was earned in cash or from another country. Examples include rental income, financial arrangements including investments in cryptoassets, and foreign investment funds.
2. Filing your tax returns late
If you submit your income tax return after the due date, you may incur a late payment penalty or interest fee. These could range from $50-500, depending on how much you earn, so make sure you stay on top of when your tax return is due to avoid the extra fee.
3. Getting advice from AI
Although AI is a handy tool for all sorts of tasks, both work and personal, that doesn’t make it an expert on tax. It might give inaccurate advice, information related to another market (like the US or Australia) or even make stuff up entirely. When in doubt, consult the experts!
Visit Inland Revenue for more information on your tax obligations. If you’re unsure about what you can or can’t deduct, have significant investments, or work across multiple countries, consider reaching out to an accountant or tax agent for help.
