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.
You can deduct expenses that are incurred in earning your business income. Key categories: home office (floor area proportion of rent/rates/power/insurance), vehicle (logbook, or 25% of running costs if no logbook), equipment (depreciated over time or immediately if $1,000 or less), software, professional subscriptions, accounting fees, marketing, and entertainment costs (usually 50% deductible). Keep receipts for 7 years.
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 of the part of your home that you use for business
- 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: There must be a connection between your use of the space and your business income, and the claim should reflect the time and space used for business, so 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 three ways to work out the claim:
Logbook Method (actual cost)
Keep a logbook for at least 90 days showing each business journey:
- Date
- Distance of the journey (plus the odometer reading at the start and end of the 90 days)
- 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 can be used for up to 3 years if your business use doesn’t change by more than 20%. After that you need another 90-day logbook.
25% Rule (No Logbook)
If you don’t keep a logbook, your claim is limited to 25% of the vehicle running costs as a business expense, and IRD may ask you to substantiate the percentage. This method is simpler but less accurate, if your actual business use is higher than 25%, you are losing out.
IRD Kilometre Rates
For vehicles you own, an alternative is to claim the IRD mileage rate: $1.20 per kilometre (petrol vehicles, 2025-26 income year) for the business part of the first 14,000 kilometres the vehicle travels in the year, private trips included, then 37 cents per kilometre. Diesel, hybrid and electric vehicles have different rates. Keep a logbook, diary or other record of your business kilometres and the vehicle’s total kilometres for the year. No need to track actual costs.
Equipment and Assets
Items of $1,000 or less (low-value asset write-off)
You can deduct the full cost in the year of purchase for an asset costing $1,000 or less (exclusive of GST only if you are GST-registered). This does not apply to items bought from the same supplier at the same time as other assets with the same depreciation rate.
Items over $1,000 (depreciation)
Assets costing over $1,000 are depreciated over their useful life, though new assets may also get the 20% Investment Boost deduction in the first year. IRD publishes depreciation rates for different asset types. Common rates:
| Asset | Depreciation method | Approximate rate |
|---|---|---|
| Laptop computer | Diminishing value | 50% per year |
| Smartphone | Diminishing value | 67% per year |
| Office furniture | Diminishing value | 16% per year |
| Motor vehicle (passenger, up to 12 seats) | Diminishing value | 30% per year |
Common Deductible Expenses: Full List
| Expense category | What you can claim | Notes |
|---|---|---|
| Accounting and bookkeeping | 100% | Tax agent fees, Xero/MYOB subscriptions |
| Advertising and marketing | 100% | Website, Google Ads, social media |
| Bank fees | 100% | Business account fees only |
| Business insurance | 100% | Public liability, professional indemnity |
| Equipment ($1,000 or less) | 100% | Full write-off in purchase year |
| Equipment (over $1,000) | Depreciation | Spread over useful life |
| Entertainment | 50% | Food and drink for client entertainment; 50% cap applies |
| Gifts to clients | 50% | Applies if food or drink; non-consumable gifts may be 100% |
| Home office | Proportional | Floor area × eligible home costs |
| Internet | Proportional | Business % only |
| Legal fees | 100% | For business matters; legal costs of buying capital assets are not deductible if your total legal costs for the year exceed $10,000 |
| Motor vehicle | Logbook % of costs, or 25% of running costs if no logbook | Logbook % can be used with IRD kilometre rates |
| Phone | Proportional | Business % of a mobile plan; 50% of landline rental if it is also your private line; business toll calls 100% |
| Professional subscriptions | 100% | Industry bodies, professional associations |
| Professional development | 100% | Training directly related to current income-earning activity |
| Rent (office/studio) | 100% | Separate business premises |
| Software and SaaS tools | 100% | Business software subscriptions |
| Staff costs | 100% | Wages, PAYE, employer KiwiSaver |
| Stationery and office supplies | 100% | Consumed in business |
| Travel (business) | 100% | Flights and accommodation, business part only; your own meals are usually private |
| Uniforms / protective clothing | 100% | Distinctive work clothing or uniforms that identify your business; ordinary clothing not deductible |
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 not expensed; you claim depreciation instead where the asset can be depreciated, but land and goodwill cannot be)
- GST: if you are GST-registered, the GST you can claim back 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 50% deductible when they are not completely business related, such as food and drink at social events. This includes:
- Client lunches or dinners
- Food and drink you provide for social events, such as parties
- Supporting costs for other 50% entertainment, such as hire of wine glasses and wait staff for a party
The cost of your own meals is usually a private expense when you are self-employed, including when you travel for work. IRD allows only the extra cost of meals if you must work in a remote location or at unusual hours.
Keeping Records
IRD requires you to keep business records for at least 7 years from the end of the tax year they relate to. 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)
Accounting software can help you store receipts and sort expenses, which makes record keeping 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. Self-employed people can usually deduct food costs only when they are client entertainment (50% rule) or the extra cost of meals when the job requires working in a remote location or at unusual hours.
I bought a laptop for $1,500 — do I depreciate it or write it off?
Since it is over $1,000, you depreciate it over its useful life (a new laptop may also qualify for the 20% Investment Boost deduction, which changes the figures below). 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).