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Tax treatment of costs - date incurred, or date invoiced?

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  • Tax treatment of costs - date incurred, or date invoiced?

    Sorry all - I really should know this, but I'm in a situation where I had some work done before the tax year ended, but the invoice arrived in the next tax year.

    Which year, from IRD's perspective, do I need to record / claim this expense.

    I only rent out one property, and I only fill out a single IR3R. No fancy accounting structures / trust / company ownership etc.

    If anybody can enlighten me I'd be grateful.

    Thanks.
    Last edited by BigWal_v2; 31-05-2021, 08:00 PM.

  • #2
    The date of the tax invoice is usually the determinant. It should be the date of the job. Or at least dated the end-of-month in which the job was done. Even if paid for in the next tax year, your accountant will allocate the expense / cost of the actual job to the previous year, via a book / journal entry as part of a creditors and debtors adjustments process as at 31 March.

    Unless it's a very large amount, how critical is it, anyway?
    Last edited by Perry; 31-05-2021, 09:13 PM.
    Want a great looking concrete swimming pool in Hawke's Bay? Designer Pools will do the job for you!

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    • #3
      Hello BigWal_2

      I'm not an accountant, but I am sure the time when you account for the expenditure depends on whether your accounts are on an accrual, or are on a cash basis.

      1. If you are on an accrual basis, then the date of the invoice is when you account for the expense. So if you receive the invoice before 31 March, then it is included in that financial year, even if you pay it after 31 March

      2. On a cash or payments basis, then the invoice (expense) is accounted for at the time that you pay the invoice. So, if you receive the invoice before 31 March, but you pay it after 31 March, then it is accounted for in the new financial year beginning on 1 April.

      I'm sure a properly-qualified accountant will come along soon to say whether the above information is true or not.


      .

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      • #4
        My guess is that what you describe relates to accounting for GST.
        But I don't think the same applies to annual financial statements.
        Want a great looking concrete swimming pool in Hawke's Bay? Designer Pools will do the job for you!

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        • #5
          Thanks Perry / Learner

          Perry - you're quite right - it's not really a big enough amount to worry about.

          I just wanted to do the right thing, IRD-wise.

          But if I only claim in the _later_ year (the year of the invoice) then they can't complain, even if it's not strictly correct, as I'm the one losing out, not them (since I get the tax deduction a year later than I might have)

          And Learner - I wasn't sure whether accrual accounting was involved, but after your comments, and some thought, I've decided that I'm working on a cash accounting basis.

          Anyway, onwards and upwards. Now to finish the tax return before June 7. Ho hum. :-)

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