Business Expenses You Can Claim NZ 2026 — Sole Trader Tax Deductions

Claiming allowable business expenses reduces your taxable income — and therefore your tax bill. As a self-employed person or sole trader in New Zealand, you can deduct expenses that are wholly or partly incurred in earning your business income. Knowing what you can claim (and what you cannot) is one of the most important skills for managing your tax.

The Golden Rule

IRD allows a deduction for expenditure that is incurred in deriving taxable income — that is, the expense must have a sufficient connection to earning your income. Personal expenses are not deductible. Mixed-use expenses (partly business, partly private) can be claimed in proportion to the business use.

Home Office Expenses

If you work from home, you can claim a proportion of home costs based on the floor area used for business.

Calculation:

• Measure the floor area used exclusively or predominantly for business (your dedicated office space)
• Divide by total floor area of the home
• Apply that percentage to eligible home costs

Eligible home costs:

• Rent (if renting)
• Mortgage interest (if owning — but NOT principal repayments)
• Council rates
• Building insurance
• Power and internet (proportional)
• Repairs and maintenance (proportional)

Example: 10 m² home office in a 100 m² house = 10% claim rate. If rent is $24,000/year, you can deduct $2,400.

Important: The space should be used primarily for business — claiming the dining table where you occasionally check email is unlikely to pass scrutiny.

Vehicle Expenses

You can claim vehicle costs when you use your vehicle for business travel. There are two methods:

Logbook Method (actual cost)

Keep a logbook for a minimum of 90 consecutive days showing every trip:

• Date
• Start and end odometer readings
• Business purpose

At the end of the 90 days, calculate your business use percentage. Apply that percentage to all actual vehicle costs:

• Fuel
• Registration and WOF
• Insurance
• Servicing and repairs
• Depreciation (on vehicle value)
• Finance charges (if financed)

The logbook percentage is valid for 3 years before you need to redo a 90-day logbook period.

25% Flat Rate (simplified)

If you don’t want to keep a logbook, you can claim 25% of actual vehicle costs as a business expense. This method is simpler but less accurate — if your actual business use is higher than 25%, you are losing out.

IRD Mileage Rate

For vehicles you own, an alternative is to claim the IRD mileage rate: $1.04 per kilometre for business travel (current rate as at 2026). Keep a simple trip log showing business kilometres. No need to track actual costs.

Equipment and Assets

Items under $1,000 (low-value asset write-off)

You can deduct the full cost in the year of purchase for any asset costing $1,000 or less (exclusive of GST if you are GST-registered).

Items over $1,000 (depreciation)

Assets costing over $1,000 must be depreciated over their useful life. IRD publishes depreciation rates for different asset types. Common rates:

Common Deductible Expenses: Full List

What You Cannot Claim

• Personal living expenses — food, clothing, rent for your home (except the home office proportion)
• Fines and penalties — traffic fines, IRD penalties
• Private travel — holiday components of business trips
• Capital expenditure — cost of buying a business, premises, or permanent improvements (these are depreciated, not expensed)
• GST — if you are GST-registered, the GST portion of expenses is not an income tax deduction (it is claimed separately on your GST return)
• Drawings/owner salary — if you are a sole trader, amounts you pay yourself are not deductible (your profit, after expenses, is your taxable income)

Entertainment — The 50% Rule

Entertainment expenses are only 50% deductible when they involve food and drink. This includes:

• Client lunches or dinners
• Team drinks or meals
• Function venue costs (where food and drink is the main purpose)

Non-entertainment business meals (e.g., a meal while travelling overnight for business) may be fully deductible.

Keeping Records

IRD requires you to keep all records for 7 years. For business expenses this means:

• Invoices and receipts (for every deduction claimed)
• Bank statements (to corroborate payments)
• Logbooks (if claiming vehicle expenses)
• Home office calculations (floor area measurements)

Good accounting software (Xero, MYOB, Wave, Hnry) automatically stores receipts and categorises expenses, making this significantly easier.

Frequently Asked Questions

Can I claim my phone as a business expense?

Yes, proportionally. If you use your phone 60% for business, you can deduct 60% of the monthly plan cost and any business-related calls. Keep records showing why you estimated the business percentage at that level.

Can I deduct my lunch every day?

No. Everyday meals are personal living expenses. You can only deduct food costs when they are genuinely part of client entertainment (50% rule) or necessary due to overnight business travel.

I bought a laptop for $1,500 — do I depreciate it or write it off?

Since it is over $1,000, you must depreciate it over its useful life. At a 50% diminishing value rate, in year 1 you deduct $750 (50% of $1,500), in year 2 $375 (50% of the remaining $750), and so on. However, if you are GST-registered, the cost is $1,500 excluding GST ($1,304.35), which is still over $1,000.

Are professional development courses deductible?

Yes, if the training maintains or improves skills directly related to your current income-earning activity. A marketing consultant doing a copywriting course: deductible. The same consultant doing a cooking class: not deductible. A course that qualifies you for an entirely new profession is generally not deductible (it is capital in nature).

Related Guides

• Self-Employed Tax Guide NZ
• Sole Trader Tax Return Guide
• Home Office Deduction NZ
• GST for Small Businesses NZ
• Self-Employed Tax Home