Common Tax Mistakes New Zealand Businesses Make - And How to Avoid Them

New Zealand’s tax system is often described as one of the simplest in the world - but “simple” doesn’t mean “easy.”

Every year, the Inland Revenue imposes thousands of dollars in penalties and interest because businesses make avoidable tax mistakes. Some errors are small, others are costly enough to impact cash flow, financing, or even business survival.

At RSM New Zealand, we see certain traps catch business owners and managers time and again — and most of them can be avoided with good systems, forward planning, and professional advice.

1. Confusing Cash Flow With Profit

Many businesses spend based on what’s in the bank, forgetting that tax is owed on profit, not cash. A healthy bank balance can hide an impending tax bill — especially if GST and provisional tax obligations haven’t been factored in.

How to avoid it:

• Maintain a separate tax savings account. One effective way to avoid nasty surprises is to automatically set aside a fixed percentage of every payment received into a separate tax savings account. This ensures you’re not inadvertently spending money earmarked for tax, and it helps turn looming liabilities into manageable, planned-for expenses.
• Use rolling forecasts to model cash flow including tax payments. This approach allows you to anticipate upcoming liabilities and adjust your spending before tax deadlines creep up unexpectedly.

2. Missing GST Deadlines or Filing Incorrectly

GST rules seem simple, but errors in coding transactions, claiming GST on ineligible expenses, or forgetting to register once turnover exceeds $60,000 are common. Incorrect GST claims can trigger a review or audit by Inland Revenue.

How to avoid it:

• Reconcile GST returns to your accounts every filing period and review GL coding.
• Review GST treatment on mixed-use assets, overseas purchases, and exempt supplies.

3. Treating All Expenses as Fully Deductible

Not all business expenses are created equal. Some, like entertainment, are only 50% deductible. Others — such as fines or personal expenses — are non-deductible altogether. Misclassifying them can overstate deductions and understate tax payable.

How to avoid it:

• Have a clear expense policy for your team with regard to transactions such as entertainment, capital expenditure and staff benefits (which may fall into FBT or PAYE regimes).
• Regularly review expense coding with your accountant and discuss any irregular or unusual payments if deductibility of the expenditure is in question.

4. Ignoring Fringe Benefit Tax (FBT)

Providing perks like company vehicles, medical insurance, or low-interest loans without accounting for FBT is a red flag for Inland Revenue. Many businesses under-report FBT or don’t realise they need to pay it at all.

How to avoid it:

• Keep accurate records of benefits provided to staff and ensure accounting policies and processes clearly identify when a benefit is provided.
• Review FBT exemptions and calculation options quarterly or annually.

5. Poor Record-Keeping

Lost invoices, incomplete mileage logs, or inadequate payroll records can lead to denied deductions and penalties. With IRD increasingly using data-matching, poor record-keeping can quickly become a costly mistake.

How to avoid it:

• Use cloud accounting software with proper document storage.
• Implement a monthly reconciliation process for all accounts.

6. Not Planning for Provisional Tax

Provisional tax often catches growing businesses off guard. Underestimating can lead to interest and late payment penalties; overestimating ties up cash unnecessarily.

How to avoid it:

• Use the “ratio” or “standard uplift” methods strategically.
• Recalculate regularly if your income fluctuates during the year.

7. Waiting Until Year-End to Think About Tax

Leaving tax planning until after the year closes means you’ve missed the chance to take advantage of deductions, write-offs, or income timing strategies.

How to avoid it:

• Schedule a pre-year-end tax review with your adviser.
• Consider asset purchases, bad debt write-offs, and shareholder drawings before 31 March.

The Bottom Line

Most tax mistakes aren’t the result of intentional wrongdoing — they’re caused by assumptions, outdated processes, or “we’ve always done it this way” thinking.

Working with an experienced tax adviser means you’re not just ticking compliance boxes — you’re actively protecting your business from unnecessary costs and stress.

Avoid the traps before they cost you 

Talk to the RSM New Zealand team today about a proactive tax health check. We’ll help you stay compliant, find savings, and free you up to focus on running your business.