Diana Clement: Tax tips and tricks galore

I'm not in the market of selling accountants' services - or books, for that matter. But there are a surprising number of tips and tricks that they can offer.

Slash Your Taxes Now! by Peter Sibbald includes an A-Z of tax-saving ideas. In my case, I discovered that my Sky TV subscription, which provides me with access to 24-hour-a-day news, is tax deductible for journalists. The book costs $24.95 to buy or it is free to borrow from your local library and might pay for itself.

Likewise, tax accountants argue that they pay for themselves at the very least and keep clients from falling foul of the IRD. Sibbald quotes the example of one farmer who looked him in the eye and said he needed to own a cabin cruiser to rescue drowning stock from a small lake on his property.

The IRD's website is packed full of useful information for taxpayers - providing you can navigate your way around it. But beware, says Sibbald, of the advice given out by IRD staff.

"Although IRD publications are accurate and reliable, the same cannot always be said of the information that their staff give out."

Getting your tax returns wrong can be costly. The IRD is not kind or forgiving if you make a mistake in your tax returns. Ignorance is no defence. Penalties you could face include: a shortfall penalty, late-payment penalty, late-filing penalty or interest on tax owed.

If you're worried about due dates, then go online to the IRD website (www.ird.govt.nz) where you can generate a calendar showing important dates for you.

Like death, taxes are one of life's more unpleasant certainties. But there's nothing like the end of a tax year to concentrate the mind.

There are better ways to squander your money than hand it to Finance Minister Michael Cullen. Yet as a nation we seem to love handing our money to the IRD and many of us hand over thousands of dollars more than we need to each year.

There are dozens of creative ways the self-employed can slash their taxes and even those on wages and salaries can reduce their tax bills - especially if they have investments.

1. Start a part-time business. Whether you're working a few evenings a week from home or have a full-time business, you're entitled to claim a proportion of your home office, car and other expenses. Expenses from hobby businesses are not tax deductible, so your intent is to make money, not have fun.

2. Consider investments that produce capital, not income. Providing you're not a frequent trader, there is no capital gains tax in New Zealand on property and other investments. So why buy income-bearing investments on which you'll be taxed at your marginal tax rate when you could take the capital gains tax free? Robert Oddly, of International Financial Planners, says: "To make sure you're not stung by the IRD for trading, you should record and date your intentions to hold your investments long term and don't make frequent changes."

3. Claim your home office. Even if you have business premises, make sure you set up an office at home and claim deductions, says North Shore-based chartered accountant Amy Hyde, of Accounting By Design. Just because you've got a hair-dressing salon or small factory doesn't preclude you from doing your accounting work or answering phone calls at home.

4. Put your partner or kids on the payroll. If your partner is at home full time or is on a lower tax rate than you, then consider paying him or her a salary so that as a family you pay less tax. They must, of course, do work for the company. But as Hyde points out, the IRD knows virtually every trick in the book. So be realistic and don't pay $58,000 a year for a part-time job.

5. Claim car expenses even if you don't use your car. There's a little-known tax rule that enables self-employed people who use their car for business only occasionally to claim a flat 25 per cent of the running costs including petrol, WOF, registration, repairs and so on, says Sue Neale, Hyde's business partner. What's more, you can claim depreciation on the vehicle.

6. If you're a PAYE earner, check if you're owed a refund. Hyde points out that there are millions of dollars sitting unclaimed in the IRD's coffers, now that PAYE earners are not required to file tax returns. But don't make the mistake of asking the IRD for a "personal tax summary" as you might find yourself paying tax if you owe it. Instead, ask for a summary of earnings and calculate the figures yourself or get an accountant to do it. PAYE earners can also deduct the cost of accounting fees to prepare their tax returns and unemployment insurance.

7. Amend previous years' tax returns. If you find that you've missed deductions from last year's tax return, says Sibbald, take advantage of what he calls the "Santa Claus" and amend tax returns for the past seven years.

8. Watch those foreign bank accounts. If you've got cash in overseas banks, you're required to declare the foreign exchange paper gains and losses in your New Zealand returns and pay tax on them. Consider putting the money in other investments instead such as unit trusts (managed funds) or shares. But beware there are many traps for the unwary. Under the IRD's foreign tax rules, money invested in Japan, the United States, Canada, Australia, Britain, Germany and Denmark is treated differently to elsewhere and even a listing on the British stock exchange doesn't mean that the underlying assets are registered there - and that's what matters.

9. Check out the latest tax-efficient investments. Some investments have better tax breaks than others. Passive funds that track stockmarket indices are treated more leniently than managed funds, which are hit with 33 per cent tax on income and capital gains. High-earning investors in the South Island are finding favour in tax-efficient forestry blocks, says Sibbald. These can be bought for as little as $20,000 and have the advantage of making losses over a number of years that can be offset against taxes. Sibbald says when you do take the income the IRD allows it to be spread over several tax years. What's more, if you've retired in the meantime or your income reduced, then you may be in a lower marginal tax bracket when the income comes your way.

10. Consider the advantage of trusts and limited liability companies. Sibbald and Hyde recommend using a loss attributing qualifying company (LAQC) for your business or rental properties if you have them. These companies allow you to claim losses from your business against your personal tax. Family and other trusts can also be beneficial. But the issues surrounding them can be complex.