Some past outrageous tax expense claims

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Some past outrageous tax expense claims

Hamish Pryde • May 11, 2015

What you can claim as a tax deduction is based on legislation and case law. The law is "Income Tax Act 2007" (plus amendments and related regulations) and has two parts that need to be considered:

Section DA 1: The General Permission Test – expenditure incurred in deriving business income.

Section DA2: The Private Limitation Test – that is spending that is not of a private or domestic nature.

Expenditure deductions must be necessarily incurred in production of assessable income and not private in nature. The legislation is a very thick volume, and new amendments to the Income Tax Act 2007 and a raft of amendment acts are passed on a regular basis. To keep on top of the legislative changes takes many hours of what some might call unproductive time to be spent to remain informed. When we know the legislation, we can advise appropriately to ensure our clients do not take an unacceptable tax position resulting in back taxes, penalties and use of money interest. In extreme cases of tax ignorance, this can result in jail time.

Some quick examples I can recall of things that have been attempted to be claimed that could have resulted in the aforementioned back taxes and penalties if we had not advised against:

· Glasses – Needed to see of course, however, by the same nature, if you had heart surgery then you should be able to claim the many thousand-dollar surgeons bill. You need to live to pay tax of course. However, a private limitation would override the claim.

· Motorised Sheep Dip Stirrer – sounded reasonable until it turned out to be a Honda 150 HP motor. The motor was powerful enough to propel the boat at the lake by the way.

· Business clothes are generally not claimable. They may be necessary for modesty but that is a private limitation. There are two exceptions. Firstly if the clothes are a uniform, branded and a requirement to be worn by all in the business and not something, that would be suitable to wear on the weekends. Secondly, protective in nature. Protective clothing is prescribed and includes steel cap boots, gumboots, gloves and rainwear.

· You can't claim your lunch. Yes, you need it to live to earn money to pay taxes, but again a private limitation. If you are entertaining in the course of business, taking a client out to lunch, or suppliers to a rugby match, that has a whole set of rules and usually only 50% deductible.

· Doctors bills and physio. This is private expenditure. The main reason for this expenditure is for your health or wellbeing.

· Flu Injections for staff - The flu injection relates to health and safety and has a specific legislation authoritative support to enable a claim and be exempt from fringe benefit tax.

· Illegal activities are not tax deductable. This includes all fines, whether they be for speeding, overstayed parking or for overloading.

· Sky TV, if you are a farmer and need it for the weather channel perhaps. However, you would need to apportion the total cost for the non business related channels.

What you can and can't claim is not always straight forward and each situation is different. If in doubt, it pays to ask your accountant ~ someone who knows.

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More & More Paper Less

By Hamish Pryde • September 11, 2024

Paper is everywhere. We spend a lot of time and money moving paperwork around. But with today’s technology it is now possible to get rid of paper entirely. Digital documents are simpler, easier to store and send, more searchable and permanent. How long does it take to post a document to somebody via the ole stamp and envelope method, that is snail mail? It is more efficient and timelier to email the document. How many times do you go to print a document at home and find that your printer has run out of ink? Why do we still hold onto printing paper documents? Sometimes it’s just because that’s what we’ve always done and let’s face it change can be difficult at first. Paper alone is cheap. But when you start paying for printers, toner, servicing and maintenance, paper starts to look more expensive. Let alone the storage cost. Paper tax records for seven years can be quite a few boxes of paper. We have embraced some paperless technology as part of a modern business practice. This includes digital signatures, digital collaboration, paperless minutes of business improvement and coaching meetings, electronic work papers and my new digital notebook which I am enjoying. We send questionnaires via email to you to gather vital information to enable us to prepare your annual financial statements. This is a PDF document. Instead of printing the questionnaires you could save the document down into a folder of your choice then edit the PDF document and return to us. How do you edit a PDF document you ask? Once you have opened the document the Adobe online editor lets you do some things for free. The online editor works in any web browser and lets you add text, sticky notes and highlights. Click on the fill & sign button to the right of the document, then in the top toolbar click Iab text button. You can add text directly on the PDF document. Have a try next time you have a PDF document open. Xero and Farm Focus users can attach invoices directly to the transaction loaded into Xero. Then if you are looking at the rates expense in the profit and loss account or farm working account, you can drill down into the rates code and see the transactions. Then attached to each transaction is the rates invoice if you use this great functionality. All invoices can now be stored in the cloud. So why paperless? Productivity - electronic documents are instantly and simultaneously available to everyone who needs them. Reduce waiting times with less risk of loss or damage. Cost savings - you will save money on printing, postage and associated costs. You could pay less rent because you won’t need all that space for your files. Security - electronic documents are more secure than printed ones. Digital records can be password protected and rendered unreadable through encryption. Printed documents are only as secure as their proximity to a copy machine. Reduced Clutter - paperwork on desks and shelves are not only untidy it’s inefficient too. The organisation of digital files is simpler and your office will look much neater. That will help you clear your mind to focus on your business. Environmentally friendly - less printing means fewer trees cut down for pulp and less energy used to make and transport paper. Disaster recovery - if there is a fire or flood, recovery from the backup is much easier with digital storage them with paper. There are great help articles available in Xero or Farm Focus if you are not attaching invoices to payments already. To find out how click on the links below: If you would like to explore ways you can go paperless we can help.