Question

As per New Zealand taxation law-

Which of the following is a taxable activity?

(a) Renting out a small commercial building in Napier for $52,000 per annum.

(b) Renting out a residential house in Ponsonby, Auckland for $62,400 per annum.

(c) Lending $500,000 on a mortgage on a house for $27,000 interest per annum.

(d) Selling a house which you have inherited from your mother’s estate for $800,000.

Which of the following transactions is fully deductible as a business expense in the year ending 31 March 2018?

(a) Legal costs of $18,600 for purchasing a new business.

(b) Legal costs of $7,600 relating to collecting doubtful debts.

(c) Costs of $8,300 for adding a new deck and barbeque area to a residential rental property.

(d) Costs of $10,000 for a fine imposed by government for breaching a resource consent and dumping toxic waste.

Answer 1

Please see below for my answers -

(a) Renting out a small commercial building in Napier for $52,000 per annum - This is a taxable activity. Any income that you receive from renting out property will be liable for income tax, so you must include it in your tax return.

(b) Renting out a residential house in Ponsonby, Auckland for $62,400 per annum - This is a taxable activity

(c) Lending $500,000 on a mortgage on a house for $27,000 interest per annum - This is a taxable activity. Interest income is taxable as per New Zealand tax laws

(d) Selling a house which you have inherited from your mother’s estate for $800,000 - This is not a taxable activity. New Zealand governement has recently introduced limited capital gain tax. However, the new tax will not apply to the family home or death estate or property sold as part of a relationship settlement

Fully deductible transactions

(a) Legal costs of $18,600 for purchasing a new business - Not deductible. Legal expenses are deductible if they help to earn business income.

(b) Legal costs of $7,600 relating to collecting doubtful debts - This is deductible as it's related to business activity

(c) Costs of $8,300 for adding a new deck and barbeque area to a residential rental property. - Not deductible as it's not activity related to generate business income

(d) Costs of $10,000 for a fine imposed by government for breaching a resource consent and dumping toxic waste - This is not deductible as fine/penalty imposed by government are not deductible expenses