The tax system is unfair for salary earners in New Zealand.
- You’re taxed on your gross income. Not net income like a business
- You also don’t get the same flexibility when it comes to claiming expenses. Businesses can deduct things like home-office expenses, meals and even vehicle costs.
And if you’re a salary earner? Most of these deductions are off-limits.
While I don’t make the rules, I can help you navigate them. And If you play the game smartly, there are still ways to save on tax.
Let’s tackle the most common myth I hear:
“Salary earners in New Zealand cannot claim any expenses against their income.”
That’s not entirely true.
Because while the employment limitation does generally block most deductions against salary income, there are a few exceptions.
In this article, I’ll show you:
- 7 little-known expenses you can claim
- How to easily check if they apply to you.
- And how to actually claim them in your tax return
Let’s begin.
How This Works
Before I jump into the list, here’s a quick overview of how salary earners are taxed:
- You pay tax on your gross income (also known as “taxable income”).
- For example, if your salary is $100, you might only see around $80 in your bank account.
- The difference is tax and levies, paid directly to IRD and ACC by your employer.
So by the end of the tax year, most salary earners have already paid all their tax in full.
Why Understanding This is Important
You could get a tax refund, if you claim certain expenses.
Claiming on eligible expenses reduces your taxable income. Since you’ve already paid tax based on the original gross amount, this can result in a refund.
7 Little-Known Expenses Salary Earners Can Claim
I’ve broadly referred all of the below as “expenses”, but to be technically accurate, some are expenses, others are rebates or tax credits, and some involve doing specific things that trigger a claim. IRD classifies these as non-business expenses.
But the outcome is the same: these costs can be offset against your salary income, potentially reducing your tax bill and triggering a refund.
1. Insurance Premiums for Income Protection
If you have income protection insurance (also called “loss of earnings” insurance), and the payout would be taxable, you can claim the premiums as a deduction.
Make sure you’re only claiming the income protection portion, not life or trauma cover bundled in. Also be mindful that this is different from ACC. While they may seem similar, ACC and private income protection cover different things. Ask your provider if your policy is tax-deductible.
2. Commissions Paid on Investment Income Earnings
If you earn money from investments (interest, dividends, etc), and you’ve paid commission to a broker or financial adviser to manage those, you can claim that as a deduction.
This only applies to commissions that are directly related to earning income, not general bank fees or admin charges. Most banks don’t charge commissions anyway, they usually charge monthly account or transaction fees, which are not claimable.
3. Interest Paid to the IRD
The current IRD use-of-money interest rate is close to 10%, which is… brutal. So if you’ve paid interest, make sure you claim it.
Common examples:
- Interest on overdue tax, even if you’re on an instalment plan.
- Interest on Working for Families Tax Credits (WFFTC) overpayments, especially if you opted for weekly or fortnightly payments and your actual income ended up higher.
Tips for the examples above:
- If you’re claiming interest, make sure it’s just the interest, not penalties or late fees, as those aren’t deductible.
- If you can afford it, consider switching to lump sum WFFTC payments at year-end to avoid surprise bills.
4. Interest on Money Borrowed to Invest
If you’ve borrowed money to invest (e.g. in shares), and the investment earns taxable income, then the interest you’re paying on that loan may be deductible. The key is that the investment must be intended to earn income. If the purpose is personal, like buying a car or going on holiday, then the interest is not deductible.
5. Costs to Complete Your Tax Return
If you pay someone to prepare and file your income tax return, you can claim that fee as a deduction. This includes:
- Tax agents
- Accountants
- Any third-party service that files your return on your behalf
But it doesn’t include financial advice or other unrelated services. It has to be tied to filing your return.
6. Donation Tax Credits
If you’ve donated to an approved charity or school, you can get back 33.33 cents for every $1 you donated. Surprisingly, many people don’t claim this.
Some reasons I hear:
- “It defeats the purpose of donating.”
- “It’s too much admin.”
- “I didn’t donate enough to bother.”
Here’s why you should claim it:
- The process is now fully online.
- You can go back up to 4 years.
- It helps you give more. You can even re-donate the refund if you don’t want to keep it.
You’ll need:
- A valid donation receipt
- To check the organisation is on the IRD’s approved list
- And your total donations need to be less than or equal to your taxable income.
7. Independent Earner Tax Credits (IETC)
If you earn within the current current threshold of $24,000 and $70,000, you may be eligible for Independent Earner Tax Credits (IETC). Most of the time, this is automatically applied, but it’s worth checking your assessment to make sure you’re getting it.
How to Check If These Apply to You & Claim These in Your Tax Return
Step 1: Check Your Eligibility for Expense Claims
- Expenses 1-5: Eligibility Calculator. Look for ‘Can I claim an expense on my individual income tax return?’
- Expense 6 (Donation Tax Credits): Tax Credit Eligibility.
- Expense 7 (Independent Earner Tax Credits): IETC Eligibility. Look for ‘Am I eligible for the IETC?’
Step 2: Claiming Non-Business Expenses
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Regards,
Baqir Hussain, FCCA