12 Common issues and mistakes we regularly see

We review many financial statements prepared by other accountants. Below are some recurring issues we frequently identify, many of which are also areas the IRD commonly focuses on.

1. Interest deductibility not being legally maximised

Where personal home debt exists, it is often possible to legally restructure lending so that more debt sits against rental properties, creating long‑term tax savings. We see many missed opportunities to increase deductible debt, as well as restructures that were well intentioned but not technically executed correctly.

2. Unrealistically high home office claims

Home office percentages are often claimed at levels that cannot be reasonably justified once discussed in more detail. It’s important to ensure home office claims are realistic and defensible.

3. No chattels valuations for rental properties

While IRD has no issue with chattels valuations, many property investors are missing out on thousands of dollars in depreciation deductions by not obtaining them.

4. Missing exemptions under the Interest Limitation rules

Some property investors fail to apply available exemptions, resulting in unnecessary overpayment of tax.

5. Excessive entertainment claims

We regularly see large entertainment claims where a portion is clearly private rather than business-related. We recently shared an IRD example in a Facebook post that highlights this issue well.

6. Incorrect GST treatment following a change in use

GST is often incorrectly returned when a property changes from a GST activity to non‑GST use (such as long-term residential rentals). We have seen cases of significant GST overpayments, as well as underpaid GST, depending on how this is handled.

7. Private use of motor vehicles not considered

Motor vehicle expenses are a common IRD review area, yet private use is often overlooked or not adjusted for correctly.

8. Structures not reviewed to legally minimise tax

Appropriate structuring is often not considered. Ross recently reviewed financial statements of a highly profitable business where all shareholders were high-income earners. By restructuring using companies, trusts, or LTCs, the business could have saved or deferred approximately $50,000 per year in tax.

9. Employee annual leave entitlements not recorded as a liability

Although annual leave is often not deductible for tax until paid, it should still be recorded as a liability to reflect the true financial position of the business.

10. Income in advance or deposits not accounted for correctly

Income is sometimes recognised even though the work has not yet been completed, leading to incorrect reporting.

11. Accounts payable / creditors not included

Legitimate expenses are frequently missed or claimed late. In one small business review we completed today, missed creditors totaled approximately $28,000, reducing tax by around $9,000.

12. Only a Profit & Loss prepared instead of full financial statements

Providing only a P&L is poor accounting practice. This often results in depreciation not being claimed and debtors/creditors not being adjusted correctly in future years, which can lead to income or expenses being returned twice.
 

This article is for general information only and is not intended as accounting, tax, or financial advice. You should seek advice from a qualified professional before acting on any information provided.

Any examples or figures are for illustration purposes only and should not be relied on for decision-making.