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TAX •  9 MARCH 2023 • 6 MIN READ

Myth busters: Before you file a tax return in NZ

Fallen jenga blocks representing busting some common tax myths

There are many misconceptions floating around regarding whether you need to file a tax return in NZ. The Inland Revenue Department (IRD) is responsible for collecting taxes and making sure you pay the right amount of tax. Failing to file an accurate tax return can result in fines or penalties, so these misconceptions can prove costly. At Beany, we’re here to help you manage your tax as smoothly as possible - so let’s clear the air on a few of these myths.

Myth 1: I can claim on all my expenses

As a business owner, one of the common misconceptions you may have is that you’ll be able to claim all your expenses. Unfortunately, this is not the case! You can only claim expenses which have been necessarily incurred in generating your business income. If some expenses have both a business and a private element, you can only claim the business proportion of your expenses - and even then there are certain rules you’ll need to follow. 

Home office expenses

Over the past few years it has become increasingly common to work from home. This has led to many business owners asking whether or not they’ll be able to claim home office expenses when it’s time to file their tax return.

The rule of thumb here is you need to prove a connection between your home office being used, and the income you’re generating. The space you use for business at home needs to be ‘separately identifiable’, such as a study or specific area set aside (the couch or kitchen bench doesn’t qualify!). There are 2 ways to claim home office expenses in New Zealand:

  • Using IRD’s Square Metre Rate: this uses a flat rate set by the IRD, based on the average cost of utilities per square metre of housing for NZ households. This rate can change, and is updated on the IRD’s website.
  • With the actual cost method: if the Square Metre Rate method doesn’t reflect your actual home office expenses, you can choose to calculate each item individually. This requires you to keep financial records of all the home costs you wish to claim - including rent, rates, insurance, electricity, home repairs, or interest on your mortgage. 

For more information, we have an article on how to calculate home office expenses.

Motor vehicle expenses

Motor vehicle expenses are another expense that business owners frequently claim. There are different rules depending on whether you’re a sole trader or trading through a company. 

In short, if you’re a sole trader, you can claim the business use percentage of all motor vehicle expenses, or you can claim for the kilometres travelled on business at a set cents per kilometre rate. You’ll need a logbook to track this.

If you’re a company, generally the company can claim all motor vehicle expenses, but you’ll be required to pay or make adjustments for Fringe Benefit Tax (FBT). The FBT recognises the private benefit you get from having a company vehicle. Our blog on motor vehicle expenses explains this in more detail.

Entertainment expenses

Entertainment expenses are another tricky one. Once more, you can only claim entertainment expenses if they have helped you generate business income - however, the line between the business and personal elements can be blurry. 

There are also specific rules applied to different types of entertainment expenses. For example, some expenses are fully deductible, some are 50% deductible and some are fully deductible (but subject to FBT). We have a detailed guide on entertainment expenses


Tax on monthly memberships and subscriptions can be claimed back as long as they were incurred in generating taxable income, or for training which increased your expertise in the area of your business. We have a checklist outlining what is tax deductible, and what is not - read more about it here.

Myth 2: I don't need to declare all my income

It is important to declare all sources of income, regardless of how small they may seem. This includes your rental income, dividends, and cash sales. As an NZ tax resident, you’ll also need to declare income earned overseas. The method by which you earned your income does not determine your liability to pay tax.

If you’re unsure, it’s best to double-check with your accountant. It also pays to contact the IRD, as they can still audit those who don’t make any profit or owe tax. 

Myth 3: I don’t make enough to get audited

As mentioned, you can still face an audit without making a profit or paying tax. The New Zealand tax system operates on a basis of “self assessment”, so it’s up to you to make sure you file a return. You could be audited by the IRD for a variety of reasons, regardless of the amount you earn or owe in tax. Some of these reasons include:

  1. Random selection: the IRD could select you for an audit by a random selection process.
  2. High or unusual deductions: for instance, if you claim a large amount of expenses in comparison to your income, or if something is unordinary to the industry in which you operate.
  3. Low income: if your income is too low, they may question how you are affording to meet basic living expenses
  4. Inaccurate information: if the information on a tax return does not match the information provided by a third party
  5. Red flags: the IRD may also perform audits if they deem anything to be a red flag or indicator of potential tax avoidance, such as failing to report all income, or claims on suspicious deductions
  6. Previous audit: if you’ve been audited in the past, you may be more likely to be audited in the future

Keep in mind it’s the job of the IRD to perform audits, and they do this to make sure everyone pays their fair share of taxes. More information can be found on their website.

Myth 4: My accountant is liable for any mistake

While accountants can certainly help you prepare your tax return, it is ultimately your responsibility to provide accurate information for filing. In the eyes of the IRD, your accountant is not responsible for any inaccuracies or mistakes, so it’s important to review your tax return thoroughly before submitting it. Treat yourself as an active player in the preparation of your tax return, and a good accountant will make this a smooth process.

Myth 5: The time it takes to file a tax return in NZ is time-consuming and complicated

Tax returns can be a complex and detailed process - but they don’t have to be. There are plenty of resources that can help (including the IRD’s IR3G guide), and hiring an accountant can make this even easier.  There’s lots of simple accounting software (such as Xero) to help you easily track your income and expenses.

At Beany, we’re here to help business owners manage their accounting with ease. Get in touch with one of our problem solvers today to see how we can take the stress out of your next tax return.

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Myth 6: If I don't submit a tax return then IRD won't be able to make me pay the tax that I owe

It’s a legal requirement to pay the taxes you owe, and the responsibility of declaring them to the IRD rests on you. Unfortunately, pleading ignorance with IRD doesn’t usually work - failing to file a tax return in New Zealand can mean facing penalties and fines on top of the tax you owe. The IRD has various resources at their disposal to track who owes them tax, even if an individual has not filed a tax return.

In some cases, the IRD may simply estimate the amount of tax owed based on available information, such as business purchases against profits, and take enforcement action to collect the debt. It’s always best to file a tax return, even if you can’t pay the tax you owe, in order to minimise the risk of additional penalties and fines. In this case, filing a tax return and working with both the IRD and an accountant to resolve any outstanding tax debt is a responsible and proactive approach.

Myth 7: It’s optional to file a tax return in NZ

If you're in business, and derived any form of business income, you will need to file a tax return. If your only source of income is salary, wages, NZ sourced interest or dividends, you may not need to. 

If you're unsure about whether you're required to file a tax return, it's a good idea to consult with your accountant or the IRD.

Myth 8: There is no harm in leaving filing my tax return until the very last minute

Deadlines are all too good at sneaking up on us. Mistakes are more likely to happen when under time pressure, which can only complicate matters further. If you file your tax return inaccurately, or late, you run the risk of facing interest and penalty fees.

It's always best to file your tax return as early as possible and to give yourself plenty of time to gather all of the necessary information. To help with this, we have created a calendar to help you keep these key financial dates in mind. 

Myth 9: I don’t need to keep all my receipts

The IRD requires you to keep financial records (such as bank statements, receipts, invoices, and other documents) for at least 7 years. The IRD may request to see these records at any stage within the 7 years in order to verify the accuracy of the information reported on your tax return.

You can keep them electronically, or as paper copies. Organising them by date and category is a great way to ensure none go missing.

Tax returns - made easy with Beany

Keeping on top of your tax returns is a key component when managing any business. It’s important to be well informed on New Zealand tax laws, and this means steering clear of any misconceptions (and penalty charges!).

At Beany, we’re here to help cut through the noise. From advice on how to calculate home office expenses to keeping on top of key dates, your own personal accountant will help you make tax returns a formality, rather than a stress.

Chris Wright


Loves music, travel, and Liverpool FC. In that order.

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