Did you know you can leverage tax benefits on hardware and software purchases before the end of the year? Here’s how to save more with smart timing and tax-savvy strategies!
1. Immediate Deduction for Low-Cost Assets
Assets costing less than NZD 1,000 can be fully deducted in the year of purchase. This threshold allows businesses to immediately expense smaller items without capitalising and depreciating them over time.
2. Optimal Timing for Asset Purchases
Purchasing assets just before the end of the financial year can accelerate depreciation claims. Even if an asset is acquired late in the year, a full month’s depreciation can typically be claimed, enhancing tax deductions for that period.
3. Choosing the Appropriate Depreciation Method
New Zealand allows two primary depreciation methods:
- Diminishing Value (DV): Depreciates assets more in the earlier years.
- Straight Line (SL): Depreciates assets evenly over their useful life.
For IT equipment, the DV method can provide larger deductions upfront, benefiting businesses seeking immediate tax relief.
4. Utilising Depreciation Rates for IT Assets
Specific depreciation rates apply to IT assets:
- Computers and Software: 50% DV or 40% SL.
- Mobile Phones and Tablets: 67% DV or 67% SL.
Applying these rates accurately ensures compliance and maximises deductions.
5. Capitalising and Depreciating Software Development Costs
Costs incurred in developing software for internal use should be capitalised and depreciated. However, if a project is abandoned, the associated costs may be deductible in the year of abandonment.
6. Deductibility of SaaS Configuration and Customisation Costs
Recent guidance clarifies that configuration and customisation costs for Software as a Service (SaaS) can be deductible, depending on the nature of the expenditure. It’s crucial to assess these costs carefully to determine their deductibility.
7. Claiming Depreciation on Leased Assets
For finance leases, the lessee is treated as the owner for tax purposes and can claim depreciation. This approach can provide tax benefits similar to outright ownership.
8. Maintaining Accurate Asset Registers
Keeping detailed records of all assets, including purchase dates, costs, and depreciation claimed, ensures compliance and facilitates accurate tax reporting.
9. Reviewing Asset Useful Lives
Regularly reassessing the useful lives of assets can lead to adjustments in depreciation rates, potentially increasing deductions if assets have shorter useful lives than initially estimated.
10. Consulting with Tax Professionals
Given the complexities of tax regulations, consulting with tax professionals ensures that businesses fully leverage available benefits and remain compliant with current laws.
The content in this blog is intended to provide general insights and should not be regarded as professional advice. Each business situation is unique, and we recommend consulting with a professional for specific guidance. At Black Arrow Business Studio, we specialise in accounting and consulting services designed to support your business’s growth and success. Feel free to contact us for expert advice and customised solutions.
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