Tax rules and rates change. This page explains how the system works so you know what to ask about; it is not tax advice for your situation. Confirm current rates and thresholds at ird.govt.nz, and talk to a chartered accountant before making decisions.
The basic rule
You can deduct an expense if it was incurred in earning your business income. Private and domestic spending is not deductible, and where something is used for both, you claim only the business share.
That is genuinely the whole test. The complications are all about apportionment and evidence, not principle.
A deduction does not save you the full amount: it reduces the income you pay tax on. If your marginal rate is 30%, a $1,000 deductible expense reduces your tax by about $300. Not free, but a third off is worth keeping the receipt for.
Commonly claimed by sole traders
| Category | Examples and notes |
|---|---|
| Tools and equipment | Lower-cost items can generally be claimed outright; more expensive assets are depreciated over time. Your accountant will apply the current threshold. |
| Materials and stock | Anything consumed in doing the work or resold. |
| Software and subscriptions | Accounting software, design tools, hosting, your domain name and mailbox. |
| Phone and internet | The business proportion. Be realistic and consistent. |
| Vehicle | Business-use share, see below. |
| Home office | Business-use share, see below. |
| Insurance | Public liability, professional indemnity, tools and business contents cover. |
| Professional fees | Accountant, bookkeeper, and legal work relating to the business. |
| Advertising and marketing | Signage, printing, ads, website costs, business cards. |
| Training | Courses that maintain or improve skills used in your current business. Training for an entirely new career generally is not deductible. |
| Travel | Business travel and accommodation. If a trip mixes business and holiday, only the business portion is claimable. |
| Bank fees and interest | On business accounts and genuine business borrowing. |
| Bad debts | Invoices you have genuinely written off, if the income was previously returned. |
Working from home
If you use part of your home for the business, you can claim a share of household costs: rates, insurance, power, interest or rent, and repairs to the area used.
Two approaches:
- Actual cost. Work out the floor area used for business as a percentage of your total floor area, and claim that percentage of the relevant costs. More accurate, more record keeping.
- Square metre rate. IRD publishes a rate per square metre that covers the utility-type costs, which you apply to your business area, plus a proportion of premises costs such as rates, rent and interest. Much simpler.
The space does not need to be a dedicated room, but the claim needs to be honest and proportionate. Measure the area, note the basis you used, and keep that note.
Vehicle costs
Again, two methods, and you generally stick with one:
- Kilometre rate. Claim a set rate per business kilometre travelled, using published tier rates. Simple, and no need to track actual running costs, but you still need a record of business kilometres.
- Actual cost with a logbook. Keep a logbook for a representative period (typically three months) to establish your business-use percentage, then claim that percentage of your actual running costs and depreciation. Better if you drive a lot for work.
Travel between home and your normal place of work is private, even when you are self-employed. Travel between job sites, to clients, and to suppliers is business travel. If you work from home and drive to client sites, that travel generally does count, another reason to be clear about your home office arrangement.
What you cannot claim
- Private living costs: your groceries, your rent for personal living space, everyday clothing.
- Entertainment beyond the limited deductible portion. Some entertainment is only 50% deductible.
- Fines and penalties, including parking and speeding tickets.
- Drawings: money you take out of the business for yourself is not a wage and not an expense.
- Capital purchases claimed in full where they should be depreciated.
- The GST portion of expenses, if you are GST registered: you claim that through your GST return instead, not as an income tax deduction.
The records IRD expects
Business records generally need to be kept for seven years, and they need to be in English or te reo Māori. Digital copies are acceptable.
- Invoices you issued and invoices you received.
- Bank statements for the business account.
- Receipts, including for small cash purchases.
- Your vehicle logbook or kilometre records.
- The basis of any apportionment: the floor area calculation, the business-use percentage, and how you arrived at it.
- Asset register for depreciable items.
Photograph every receipt the moment you get it and email it to a dedicated address, something like receipts@youridea.co.nz. Thermal paper fades to blank within a year or two, and a faded receipt is not evidence of anything.