IR10 Expenses Explained: Where to Put Your Costs

With tax season approaching, you likely have piles of receipts, invoices, and bank statements for your partnership or Look-Through Company (LTC). You know these are business expenses, but when faced with the IR10 form, you might wonder, "Where do I put everything?" This is a common question. The IR10 isn't just a single box for "total expenses"; it requires you to break down your costs. Getting this right is crucial for the accuracy of your financial summary.

This guide will explain the logic behind the form's expense categories so you can file with more confidence. We will look at the main expense types and clarify where they belong.

What is an IR10 Form?

First, a quick refresher. The IR10 is the Summary Financial Statements form for partnerships and LTCs. It is not where you calculate or pay personal taxes. Instead, you use it to report the business's total income and expenses for the year. The resulting profit or loss is then passed through to the partners or owners, who report their individual share on their personal tax returns (like the IR3).

Think of the IR10 as the business’s main financial report card for the Inland Revenue Department (IRD).

Main Expense Categories on the IR10

The IRD requires a breakdown of your costs to get a clear picture of how your business operates. Let's go through the key boxes in the expense section of the form.

Purchases and Cost of Goods Sold (COGS)

This is a major category if your business sells products. COGS includes all the direct costs of the goods you have sold. For instance, if you run a coffee shop, this includes the cost of coffee beans, milk, and paper cups. If you build furniture, it's the cost of timber, screws, and varnish. This category does not include overheads like rent or electricity; it is only for the costs that go directly into making or acquiring the products you sell.

Salaries and Wages

This is where you report payments made to your employees. It is very important to note that this box does not include payments to partners or LTC owners. Those payments are considered a distribution of profit, not a business expense. If you and your business partner both take a weekly "paycheck," that is not a business expense. However, the salary you pay to a part-time office assistant goes here.

Depreciation

When you buy significant business assets, you don't write off their full cost immediately. Instead, you claim a portion of their value each year as they wear out or become outdated. This annual claim is called depreciation. You must keep a fixed asset register and use the IRD's official depreciation rates to calculate the correct amount. The total depreciation for all your business assets for the year is entered here.

Repairs and Maintenance

This category is for costs related to keeping your assets in good working condition. Think of it as fixing things rather than buying new ones or upgrading them. Examples include:

• Servicing the company vehicle
• Repairing a broken office window
• Fixing a leaky pipe in your workshop

Be careful to distinguish between a repair and a capital improvement. Spending money to significantly upgrade or extend the life of an asset is a capital expense, which must be depreciated over time. For example, replacing a rusted iron roof with a brand-new steel one is an upgrade, not a repair.

Interest Expenses

If you have borrowed money for business purposes, the interest you pay on those loans is a deductible expense. This can include interest on loans to buy equipment, a business overdraft, or a vehicle loan. Ensure you only claim the interest related to business use. If a loan is used for both business and personal purposes, you must apportion the interest accordingly.

Rent and Lease Payments

This covers the rent you pay for your business premises, such as an office, storefront, or workshop. It also includes payments for leasing equipment, like a photocopier or vehicle.

Other Important Expenses

The IR10 has specific boxes for other key costs:

• ACC Levies: Levies paid for the business and its employees.
• Bad Debts: If you have recorded income from an invoice but have been unable to collect the payment after taking all reasonable steps, you can claim the amount as a bad debt.
• Insurance Premiums: For business-related insurance, such as public liability, professional indemnity, or asset protection policies.

Total Other Expenses

What about all the other costs, like phone and internet, office supplies, accounting fees, and software subscriptions? These smaller, miscellaneous costs are grouped together and entered into the "Other Expenses" box on the IR10 form. While you don't list them individually on the form itself, it is essential to keep a detailed record of what makes up this total. The IRD may ask for a breakdown, so having clear records in your accounting software or a spreadsheet is key. This category typically includes:

• Office supplies and stationery
• Phone and internet bills
• Power and other utilities (if not included in rent)
• Software subscriptions (e.g., Xero, Adobe Creative Cloud)
• Professional fees (for your lawyer or accountant)
• Advertising and marketing costs

What You Can't Claim as an Expense

It is just as important to know what you cannot claim as a business expense on the IR10.

1. Partner Salaries or Owner Drawings: Any money paid to partners or LTC owners is an allocation of profit, not a deductible expense.
2. Capital Expenses: The full cost of purchasing major assets. These are recorded on your asset register and claimed over time through depreciation.
3. Private Expenses: You can only claim the business portion of any mixed-use expense. If a car is used 70% for business and 30% for personal trips, you can only claim 70% of its running costs. The same principle applies to phone, internet, and home office expenses.
4. GST: If your business is registered for GST, you claim the GST portion of your expenses on your GST returns. The expense amounts reported on the IR10 should be exclusive of GST.

Filing the IR10 doesn't have to be a daunting task. By taking the time to understand where each cost fits, you not only ensure compliance with the IRD but also gain a clearer insight into your business's financial performance. If you ever get stuck on a specific expense, checking the IRD's official guides or consulting a tax advisor is always a wise decision.