16 Ways to Reduce your Tax Bill

1.       ACC CoverPlus Extra

·         Nominate your level of ACC cover rather than based on last years earnings

·         ACC pay 100% of the agreed value

·         Save around $2000 in some cases

·         Consider getting income protection insurance and lowering your ACC cover so you’re covered for both accidents and illness (ACC only covers accidents)

2.       Income protection insurance is tax deductible (however if you get paid out for this cover it is taxable income)

3.       Silent partner in a partnership

·         Partnership income for the silent partner can be classified as ‘other income’ so no ACC is liable on the earnings

4.       Operate under a company rather than sole trader or partnership

·         Company tax rate is 28% whereas individual tax rates are up to 39% (depends on level of drawings)

5.       Company owns private vehicle and pays FBT

·         The company purchases the private car and claims 100% of the purchase and running costs. The employee pays for the use of the car via FBT tax which can save thousands of dollars in tax

6.       Avoid GST registration until absolutely necessary

·         If you provide services to non-GST registered customers you are better off not being GST registered as they cannot claim the GST and end up paying more for your services.

7.       Fuel rebates for farmers

·         Every litre of fuel used on farm is eligible for a rebate of the road user charges which can amount to thousands of dollars

8.       Borrow money for personal items under the company

·         Those with a credit shareholder current account can apply for a loan under the company, for the company to repay money owed to them. The shareholder can use the money to purchase the personal item and the loan under the company is tax deductible

9.       Specify goodwill for the lease when purchasing a business

·         Goodwill paid to take over a premises lease is amortised and tax deductible over time, whereas goodwill is not tax deductible at all

10.   Childcare is not tax deductible

·         Under no circumstances is childcare tax deductible. You should pay someone to do your job and you look after the children

11.   Assets over $1,000 are not immediately tax deductible

·         Assets are depreciated meaning you claim the cost over time, not at the time of purchase

12.   Repairs and maintenance are immediately tax deductible

·         To reduce your tax bill at the end of the year complete repairs (eg. To equipment, tracks and races, buildings) rather than buying a new asset

13.   Donations to charities are eligible for a rebate

·         You must pay actual money (not donate goods or services) and the value must be over $5

14.   Staff gifts

·         Food and drink is only 50% deductible whereas gifts such as tools, hunting and fishing gear, electronic items are 100% deductible as long as under $300/employee/quarter

·         Bonuses are taxed through PAYE

15.   Home office claim

·         You can claim a portion of your home costs such as power, internet, insurance, mortgage interest, rates as a business expense. The portion is based on the area used for the office as a proportion of the whole house. The default for farmers is 20%

16.   Invest in assets that gain in capital value but are profit neutral

·         Usually involves the asset being purchased with a significant amount of bank lending so the interest offsets income earned

·         Eg. rental property with 60-80% debt (depending on interest rates) doesn’t make a profit but over the long term makes ~8% capital gain per year (based on historic values)

·         Eg. buying a run down farm, improving the races, fencing, regrassing, infrastructure. This increases the capital value, and a lot of the expenditure tax deductible

This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. You should consult your own tax, legal and accounting advisors before engaging in any transaction.