In New Zealand, businesses can claim various expenses to reduce their taxable income. One such category that often causes confusion is clothing. Understanding the rules around claiming clothing as a business expense is essential for ensuring compliance with Inland Revenue Department (IRD) regulations and optimising your tax deductions.
General Principles
The IRD allows deductions for business-related expenses if they are incurred in earning assessable income. However, clothing generally falls into a grey area. Most everyday clothing cannot be claimed as a business expense because it is considered a private expense.
When Clothing Can Be Claimed
- Uniforms and Specialist Clothing: You can claim a deduction for uniforms and specialist clothing. Uniforms are items of clothing that identify you as being employed in a particular business, such as a branded polo shirt with your company logo. Specialist clothing includes items necessary for safety or hygiene in certain professions, such as high-visibility vests, hard hats, or lab coats.
- Protective Clothing: Clothing that protects you from injury or illness while working can be claimed. This includes items like steel-toed boots, gloves, or protective eyewear. The primary function of the clothing must be to protect you while carrying out your business activities.
- Costumes: If your business requires you to wear costumes, such as a performer or entertainer, these can be claimed as a business expense. The key factor is that the clothing is not suitable for everyday wear.
Documentation and Record-Keeping
To claim clothing as a business expense, it is crucial to keep accurate records. Maintain receipts and invoices that clearly show the purchase of the clothing. You should also document the purpose of the clothing and how it relates to your business. This documentation is vital if the IRD audits your expenses.
Non-Deductible Clothing
Everyday clothing, even if purchased specifically for work, is generally not deductible. This includes items like suits, dresses, or general office wear. The IRD considers these items to have an element of private use, and therefore, they do not qualify as business expenses.
Mixed-Use Clothing
If clothing has both business and personal use, the IRD does not allow a portion of the cost to be claimed. The clothing must be solely for business purposes to qualify for a deduction.
Practical Tips
- Keep Separate Records: Ensure that you maintain separate records for personal and business expenses.
- Consult a Tax Professional: Given the complexities of tax laws, consulting a tax professional can help ensure you correctly classify your expenses and maximise your deductions.
- Stay Informed: Tax regulations can change, so it’s important to stay informed about current rules and guidelines from the IRD.
Conclusion
Claiming clothing as a business expense in New Zealand is subject to specific rules and regulations. Uniforms, specialist clothing, protective gear, and costumes can be claimed if they are directly related to your business activities. However, everyday clothing typically cannot be deducted. Proper documentation and understanding of the IRD’s requirements are essential for making valid claims. For personalised advice, always consider consulting with a tax professional, please feel free to reach out to us today!