What are business-related expenses?

When it comes to claiming GST, business-related expenses are the things you have paid for in order to carry out a taxable activity.

What is a taxable activity?

A taxable activity is something you do on a regular or continuous basis to supply, or with the intention of supplying, goods or services in return for a reward, such as money. This work is considered a taxable activity even if you don’t make a profit.

The following are not taxable activities when it comes to claiming GST:

  • Working for wages or a salary
  • Making supplies that are exempt from GST
  • Selling a personal possession from time to time
  • Selling things as a leisure activity

How do you claim GST?

When you sell something as part of a taxable activity, you must include GST in the price you charge. Basically, you are collecting the GST on behalf of the government and must pass it on to Inland Revenue when you file your regular GST return.

To claim back the GST you have paid on your business-related expenses, you simply subtract it from the GST you have collected and pay the balance to Inland Revenue. If you have paid more GST than you have collected you can apply for a refund of the difference.

Working out the GST you have paid out is easy. It will be shown on the invoices or receipts for the goods and services you have paid for as a result of your taxable activity. You might think you can simply work it out from your total expenses, but some expenses may not have included GST.

That’s why, for any expense over $50, you must have a GST invoice or receipt in order to claim the GST. It’s not enough to simply have the expense showing in your bank account or to say you paid cash for it.

What expenses cannot be claimed for GST?

You can’t claim back GST for any expense that’s not related to your taxable activity or any expense that did not include GST in the first place. Here are a few examples where this might occur without you realising and result in you making a false claim to Inland Revenue.

GST on imported goods

Most overseas suppliers won’t charge you GST, but they should if they have a taxable activity in New Zealand. That’s why it’s important to get a tax invoice and check whether GST was charged or not.

Online services and GST

Global cloud services – such as Google, Dropbox, website hosting and app subscriptions – may or may not be collecting GST for the New Zealand government in what they charge you. That’s why it’s important to make enquiries (their website may let you know) and request a tax invoice for any GST inclusive charge of $50 or more. If they’re not charging GST, there is no GST in that expense for you to claim back.

When GST is not charged for goods or services

Here are three reasons why a supplier may not have charged you GST

  • They may not be registered for GST because they don’t meet the annual turnover threshold that requires registration
  • They may be charging you for goods or services that are GST exempt
  • They may be charging for zero-rated supplies

GST exempt supplies include:

  • Financial services
  • Donated goods
  • Rent for residential accommodation
  • Penalty interest

Zero-rated supplies include:

  • International flights plus their connecting New Zealand domestic flights when booked through the same agent or supplier

The important point here is there’s a good chance some of your business expenses will not include GST. You can only claim the GST you were charged.

The Inland Revenue website has more on GST exempt supplies and zero-rated supplies.

GST, when part of an expense, is not business related

Sometimes you will pay for goods or services that are partly used privately or to provide goods or services to others that are not taxable.

A common example of this is when you have a home office. You can claim GST on some of the office-related expenses that charge GST, such as power and council rates, but not the full amounts. You simply calculate the percentage of the expense that is used for taxable activity. In the case of a home office, this can be done using the office’s floor area as a percentage of your home’s total floor area. You can’t claim any GST on home expenses that are not related to the office, such as carpet cleaning when the office has a wooden floor.

Other common examples of part-business/part-personal expenses include laptops, mobile phones (over $500) and vehicles that you also use in a private capacity. How you work out the percentage of business use is up to you. It just has to provide a fair and reasonable result that will satisfy Inland Revenue if they audit your accounts.

For some mixed-use assets, such as a charter boat or holiday home that you rent out and use privately, Inland Revenue provides clear guidelines on what expenses are claimable and how you should calculate the claimable percentage.

See the Inland Revenue website for more on GST adjustments for business or private use.

How to claim back GST you paid on bad debts

If you calculate your GST based on invoices (accrual basis), rather than a payments basis, you could end up paying Inland Revenue the GST you charged on a customer invoice that was never paid. If you treat this as a bad debt to balance your accounting, you can claim back the GST you paid on the bad debt. If the customer later pays up, you can simply repay the GST to Inland Revenue when that happens.

To learn more