# Tax Deductibility of Logan's Expenditures (2024/2025 Tax Year) Below is a step-by-step analysis of which of Logan’s listed business expenditures are tax deductible against his business income for the 2024/2025 tax year, based on New Zealand tax law. --- ## 1. $12,000 Legal Fees (Software Development) **Description:** Legal fees spent on the development of software for Logan’s current business. **Analysis:** - **General Rule:** Expenditure is deductible if incurred in deriving assessable income or in the course of running a business (Income Tax Act 2007, s DA 1). - **Capital vs Revenue:** Costs for developing software for use in the business are generally **capital expenditure** (creating an asset of enduring benefit). - **Deductibility:** Capital expenditure is not immediately deductible unless specific provisions apply. However, software development costs may be deductible over time as "depreciable intangible property" (s EE 58, s EE 67). - **Conclusion:** **Not immediately deductible** in full. Logan can claim depreciation deductions over the useful life of the software. --- ## 2. $300 Entertainment (Meeting Potential Clients Overseas) **Description:** Entertainment costs incurred while meeting potential clients during an overseas trip. **Analysis:** - **General Rule:** Business entertainment expenses are generally only 50% deductible (Income Tax Act 2007, subpart DD). - **Exception:** If the entertainment was "incurred outside New Zealand" and is not private, domestic, or capital in nature, it may be **fully deductible** (s DD 2(2)(d)). - **Conclusion:** **Fully deductible** if the entertainment was directly related to the business activity and incurred outside NZ. --- ## 3. $1,200 Marketing Report (Property Investments in Cebu, Philippines) **Description:** Cost for a marketing report on potential property investments. **Analysis:** - **Purpose Test:** Deductibility depends on whether the expenditure is incurred in deriving business income. - **Nature of Expense:** If Logan’s current business is IT consulting and online advertising, an expense for property investment is **not related to this business**. - **Capital vs Revenue:** Additionally, costs for investigating new capital investments are non-deductible. - **Conclusion:** **Not deductible** against his IT business income. --- ## 4. $15,000 Salary Paid to Vicky (Transaction Records in Xero) **Description:** Salary paid to Vicky for assistance with managing transaction records. **Analysis:** - **Related Party Salaries:** If salary is paid to a spouse/relative, approval from the Commissioner of Inland Revenue is required (Income Tax Act 2007, s GB 23). - **No Approval:** Logan did **not apply for approval**. - **Result:** Expenditure is **not deductible** without approval. --- # Summary Table | Expenditure | Deductible? | Notes | |-------------------------------------------|---------------------|---------------------------------------------------------------| | $12,000 Legal fees (software development) | No (capital) | Claim depreciation over useful life of the software | | $300 Entertainment (overseas) | Yes (100% likely) | If incurred outside NZ for business purposes | | $1,200 Marketing report (property) | No | Not related to business; capital/private expense | | $15,000 Salary to Vicky | No | No IRD approval for related party salary | --- # Final Summary For the 2024/2025 tax year, **Logan can claim the $300 overseas entertainment expense as a deduction against his business income**. The legal fees for software development are **capital expenditure** but may be depreciated over time. The marketing report and the salary paid to Vicky are **not deductible** against his business income due to the nature of the expenditure and lack of IRD approval, respectively.