Running a business comes with plenty of costs. The good news is that many of those costs can reduce the amount of income you pay tax on.
When we talk to business owners about small business tax deductions in NZ, the basic principle we come back to is simple: if an expense is genuinely connected with earning your business income or carrying on your business, it may be deductible. If an expense is partly business and partly private, you generally need to separate the two and claim only the business portion.
Inland Revenue confirms that businesses are taxed on their income after allowable business expenses and other deductions have been taken into account.
The difficulty is usually not understanding that deductions exist. It is knowing which business expenses in NZ qualify, how much can be claimed and what evidence needs to be kept.
This guide explains the practical side.
Important: Tax rules depend on your circumstances. This article provides general information and is current as at September 2026. It should not be treated as personalised tax advice.
Quick answer: what can a New Zealand small business claim?
Generally, we look for three things when determining whether an expense is deductible:
- The expense relates to earning business income or operating the business.
- Any private portion has been excluded.
- There are adequate records supporting the expense.
Common tax deductible expenses in NZ can include:
- rent for business premises
- electricity and other operating costs
- advertising and marketing
- accounting and tax agent fees
- business insurance
- software and subscriptions used for the business
- stationery and office expenses
- professional memberships
- employee wages and related employment costs
- business travel
- eligible vehicle expenses
- home office expenses
- repairs and maintenance
- interest on certain business borrowing
- depreciation on qualifying business assets
- some entertainment expenses
The exact treatment can vary considerably depending on the expense.
That is why we do not recommend looking at a bank transaction and asking only, “Did the business pay for it?”
The more important question is:
Why was this expense incurred, and how does it relate to the business earning income?
What this means for a New Zealand business
A tax deduction reduces taxable income. It does not normally mean Inland Revenue simply refunds the full cost of whatever you purchased.
For example, imagine a business has:
- $180,000 of taxable business income before expenses
- $60,000 of allowable business expenses
Those expenses may reduce the amount on which tax is calculated to $120,000, subject to the business structure and other relevant tax adjustments.
This distinction is important because we sometimes see business owners make purchases simply because they believe they can “claim it back on tax”.
Spending $1 purely to receive a tax deduction does not usually put $1 back in your pocket.
We would rather see a business make commercially sensible spending decisions and then make sure every legitimate deduction associated with those decisions is identified and correctly recorded.
How small business tax deductions work step by step
1. Identify the expense
Start by recording what was purchased and why.
This could be an invoice for accounting software, advertising costs, office supplies, vehicle expenses or rent.
2. Determine whether it relates to earning income
The expense needs a sufficient connection to the business.
Normal day-to-day revenue expenses such as stationery, rent and power can generally be deducted where they relate to the business. Capital expenditure, such as certain equipment intended to be kept for more than a year, can be treated differently.
3. Separate business and private use
A common mistake is assuming that because something is used for business, its entire cost automatically becomes deductible.
That is not always the case.
If you use your mobile phone 70% for business and 30% privately, for example, the deductible amount may need to reflect the business use.
The same principle can apply to:
- vehicles
- internet
- electricity
- home office expenses
- mixed-use assets
- other expenses with both business and personal purposes
Inland Revenue specifically requires mixed expenses to be apportioned between income-earning and private use where appropriate.
4. Apply any special tax rules
Some expenses have their own rules.
This is particularly important for vehicles, home offices, entertainment and capital assets.
5. Keep the evidence
Do not wait until the end of the tax year and try to reconstruct twelve months of expenditure from memory.
We recommend keeping invoices, receipts and supporting information as transactions occur.
Inland Revenue requires businesses to keep records of income and expenses for at least seven tax years, including relevant electronic records.
Calculations, records and decisions involved
Some deductions require more calculation than others.
Vehicle expenses
If a vehicle is used entirely for business purposes, its qualifying running costs may generally be claimed.
Where it is used for both business and private purposes, the business portion needs to be calculated.
Inland Revenue allows several approaches, including using actual costs or kilometre rates. A logbook can be used to establish the proportion of business use and should generally cover at least 90 consecutive days. That calculation can normally be used for up to three years provided business use does not change by more than 20%.
For the 2025-2026 income year, Inland Revenue’s kilometre rates are:
| Vehicle | Tier 1 | Tier 2 |
| Petrol | $1.20/km | $0.37/km |
| Diesel | $1.30/km | $0.38/km |
| Petrol hybrid | $0.90/km | $0.24/km |
| Electric | $1.22/km | $0.23/km |
Tier 1 applies to the business portion of the first 14,000 total kilometres travelled by the vehicle, with Tier 2 applying after that threshold under the kilometre-rate method.
Importantly, ordinary travel from home to your usual workplace is generally considered private travel rather than business travel.
Home office expenses
If you genuinely operate part of your business from home, you may be able to claim part of your household costs.
This can include an appropriate portion of expenses such as:
- rates
- rent
- mortgage interest
- electricity and utilities
Inland Revenue also provides a square metre method where part of the home is set aside and mainly used for business.
For the 2025-2026 income year, the home office square metre rate is $57.30 per square metre. Premises costs such as qualifying mortgage interest, rates or rent are dealt with separately under the calculation.
Notice the distinction with a mortgage: it is potentially the qualifying interest component, not repayment of the mortgage principal, that is relevant.
Meals and entertainment
Meals are an area where assumptions can quickly cause problems.
Your normal personal meals are generally private expenses.
For a self-employed person, Inland Revenue says the cost of your own meals will usually not be deductible, although limited exceptions can apply.
Business entertainment has separate rules. A client lunch, for example, may generally be only 50% deductible rather than 100%. Certain types of qualifying entertainment can be fully deductible, so the circumstances matter.
Equipment and business assets
Buying a computer, vehicle, machine or other substantial asset is different from buying ordinary stationery.
Capital assets kept for longer than a year are generally dealt with through depreciation rather than simply treating the entire purchase price as a normal day-to-day expense.
There are important exceptions and concessions.
From 17 March 2021 onwards, qualifying low-value assets costing less than $1,000 may be eligible for an immediate deduction rather than being depreciated over time.
There is also the Investment Boost, introduced from 22 May 2025. Qualifying new assets may receive a deduction equal to 20% of their cost, with depreciation then calculated on the remaining 80%.
These rules make correct classification particularly important.
Common mistakes and risks
The mistakes we most often want business owners to avoid include:
Claiming private expenses
Personal groceries, normal clothing, private travel and other personal living costs do not suddenly become business expenses because they were paid from a business bank account.
Claiming 100% of a mixed-use expense
If something is used partly privately, check whether it needs to be apportioned.
Treating assets like normal operating expenses
A $50 stationery purchase and a $10,000 piece of equipment may require completely different tax treatment.
Assuming every meal is deductible
Your own normal meals are generally private. Client entertainment and business-related meals can have specific deduction rules.
Poor vehicle records
Business owners frequently underestimate how important evidence is when claiming vehicle expenses. Record why the journey was business-related, not simply the kilometres travelled.
Losing invoices and receipts
A deduction is much easier to defend when there is a clear record showing:
- what was purchased
- how much was paid
- when it was purchased
- who supplied it
- why it related to the business
Inland Revenue can review these records if a business is audited.
Practical small business tax deduction checklist
Before the end of the financial year, we recommend checking the following:
- Have all business expenses been entered into your accounting system?
- Are personal transactions separated from business transactions?
- Have mixed-use expenses been apportioned correctly?
- Are vehicle records and logbooks up to date?
- Have home office expenses been considered?
- Have software subscriptions and professional memberships been captured?
- Are advertising and marketing expenses recorded?
- Have accounting and tax agent costs been included?
- Have repairs been distinguished from capital improvements?
- Have new business assets been correctly classified?
- Has depreciation been calculated where required?
- Has the Investment Boost been considered for qualifying new assets?
- Have entertainment costs been treated correctly?
- Do you have invoices or other supporting evidence?
- Are your records being retained for the required seven-year period?
A relatively small amount of organisation throughout the year can save significant time when your tax return is prepared.
When to speak with an accountant or business adviser
You do not necessarily need to call us about every $30 office purchase.
Where professional advice becomes valuable is when the answer is not obvious or when a decision could have a material tax impact.
We recommend getting advice when:
- business and private use are mixed
- you work extensively from home
- you purchase expensive equipment or vehicles
- you are unsure whether something is capital or revenue expenditure
- entertainment expenses are substantial
- your business structure has changed
- you have recently become GST registered
- your records are incomplete
- you are buying or selling significant business assets
- you are unsure whether a deduction is allowable
Good tax planning is not about trying to claim everything possible regardless of the rules.
It is about understanding the allowable deductions in NZ, keeping good records and making sure your business claims what it is genuinely entitled to claim.
If you would like us to review your expenses and help make sure your return is prepared correctly, learn more about our Tax Return Services or contact Humphries Associates.
Frequently Asked Questions
What is the short answer for a New Zealand business?
A business can generally claim expenses that are incurred in earning taxable business income or carrying on the business, provided any private component is excluded and the expense is supported by appropriate records.
Some expenses, including vehicles, entertainment, home office costs and capital assets, have additional rules.
What records or information will I need?
Keep invoices, receipts, bank records, credit card records and other documents showing your business income and expenditure.
For expenses such as vehicle use or home office costs, you may also need calculations showing how you arrived at the business-use percentage.
Inland Revenue generally requires relevant business records to be retained for at least seven tax years.
What are the most common mistakes?
Common problems include claiming private expenses, claiming the full cost of mixed business and private expenditure, failing to keep supporting documentation, incorrectly treating capital purchases as ordinary expenses and assuming all meals or entertainment are fully deductible.
When should I get professional advice?
We recommend professional advice whenever the tax treatment is unclear, the amount involved is significant or an expense has both business and private elements.
It is usually easier to establish the correct treatment before a return is filed than to correct an incorrect claim later.
Information current as at September 2026. Tax legislation and Inland Revenue guidance can change. This article provides general information only and does not take into account your individual circumstances.