Tax deductions for traders using LAQC

[KJ]

Some help please-are the home office deductions allowed to traders who use LAQC as their investment vehicle or do these deductions apply to individuals only?

[ragwort]

KJ

The short answer is yes. You can claim deductions for home office costs through your laqc. You will need to measure the size of the office as a proportion of the dwelling to ascertain the level of deductions. Having a dedicated work area such as an office will strengthen your claim as opposed to using the family's kitchen table. Go to www.ird.govt.nz and look through the booklets. I'm sure there will be one there outling the deductions available.

[shasta]

KJ, You basically can claim any expense so long as there is a "nexus" between the expense & how it may produce taxable income.

I would be hesitant to make a home office claim for sharetrading, however it is arguable i guess?

I am a sharetrader in the eyes of the IRD & have setup separate companies in which to hold/trade shares (but not LAQC's), mainly as i do not intend to make any losses & don't want to become personally liable for any tax through the LAQC regime.

Email me if you would like to know anything else!

[KJ]

Ragwort-thanks for your reply.I have looked through a lot of IRD stuff (including Staples guide)
The wording refers to "a professional or business taxpayer who uses part of the private dwelling for income earning activities may claim a proportion of total outgoings & depn"

I am concerned as the coy (LAQC)is a separate legal entity and is not the owner of the private dwelling.ie is the claim only allowable to the owner?

[KJ]

Shasta-thanks for your response.
I am attempting to help a family member re LAQC.

I am a sharetrader and am aware that claiming home office expenses is legitimate and within IRD rules.I would expect that most traders would make appropriate deductions.I operate as a sole trader.

A family member,because of other activities,wants to operate sharetrading through a LAQC through an office at home.He and his wife own the home-not the LAQC-hence can the LAQC claim deductions for the home office?

[Westie]

Hi KJ

Yes you can claim home office for the LAQC. Effectively the LAQC is reimbursing the employee/shareholder for using their personally owned office space/telephone etc for the LAQC's income earning activities. A legitimate expense. The company does not have to own that space/telephone etc. Many of our LAQC clients have home office expenses & some have been audited from time to time by the IRD & there has been no issues over home office.

Hope that helps.

[KJ]

Thanks Westie-I take it that you are working for a CA?

[Westie]

Yep, family business is CA but slowly morphing into an investment vehicle consisting of businesses, property & shares.

& home office is a great deduction.

[kura]

I also claim home office costs, though I am basically lazy & just claim $30 per week (ie $1560 pa) I couldnt be bothered measuring area & keeping records of costs, though if I ever had to justify the figure it wouldnt be too far off the mark.

Also agree with shasta, I have seen many people set up LAQC's "in case they make losses" only to find they are personally liable for some large taxes at a latter date (particularly on property transactions) It defeats the whole purpose of having a limited liability company in the first place. There can be other ways of organising one affairs, that can result in limited liability plus deductability of losses personally, but no, everybody just jumps on the LAQC bandwagon, and IRD loves it !!

[Westie]

quote:only to find they are personally liable for some large taxes at a latter date

You become personally liable for taxes unpaid by the company. If you are a director/shareholder of the company that hasn't paid the taxes, well, 6 of one, half a dozen of the other.

quote:It defeats the whole purpose of having a limited liability company in the first place

Limited liability is to protect from creditors, which may include the IRD. Normally when your business goes under you are suffering losses which also means you don't normally have tax to pay. You may still owe creditors though. If you end up in court & are found to have traded recklessly, the courts can "lift the corporate veil" and make you personally liable. So limited liability isn't the panacea that many think it is as well.