Business Expenses NZ: What You Can and Cannot Claim
Not every cost you incur in running your business is deductible. This guide explains the rules around business expense claims in New Zealand — what qualifies, what does not, and where the grey areas are.
Business Expenses NZ: What You Can and Cannot Claim
One of the most common questions we hear from small business owners is: "Can I claim this?" Whether it is a client lunch, a new laptop, or a trip to a conference, the answer is rarely a simple yes or no.
New Zealand's tax rules around business expenses are based on a general principle — but applying that principle to specific situations requires judgement. This guide explains the framework, walks through the most common expense categories, and flags the areas where people most often get it wrong.
The General Rule: The Nexus Test
Under the Income Tax Act 2007, an expense is deductible if it is incurred in the course of deriving assessable income and is not of a capital, private, or domestic nature.
In plain English: the expense must have a genuine connection to your business income, and it must not be a personal cost dressed up as a business one.
This is known as the nexus test — the expense must have a nexus (connection) to your income-earning activity.
IRD applies this test when reviewing expense claims. The question they ask is: would you have incurred this cost if you were not running this business? If the answer is no, it is likely deductible. If yes, it is likely personal.
Fully Deductible Business Expenses
The following expenses are generally fully deductible when incurred for business purposes:
Wages and salaries
Payments to employees — including PAYE, KiwiSaver employer contributions, and ACC levies — are fully deductible. Shareholder-employee salaries are also deductible, provided they are reasonable for the work performed.
Rent and occupancy costs
Rent on business premises, rates, building insurance, and utilities are deductible. If you work from home, a portion of these costs may be deductible (see below).
Professional fees
Accounting fees, legal fees (for business matters), and consulting costs are deductible. Note that legal fees for capital transactions — such as buying a business or property — are generally not deductible.
Insurance
Business insurance premiums are deductible. This includes public liability, professional indemnity, business interruption, and key person insurance. Personal life insurance is not deductible.
Marketing and advertising
Website costs, advertising, social media, print materials, and promotional expenses are deductible.
Software subscriptions
Xero, MYOB, Microsoft 365, project management tools, and other software used in the business are deductible. Under current IRD guidance, most software subscriptions are treated as revenue expenditure (fully deductible in the year incurred) rather than capital expenditure.
Bank fees and interest
Bank fees on business accounts and interest on business borrowings are deductible. Interest on borrowings used to fund private assets is not.
Stationery and office supplies
Pens, paper, printer cartridges, and similar consumables are fully deductible.
Training and professional development
Courses, seminars, and training directly related to your current business activities are deductible. Training for a new career or business is generally not.
Partially Deductible Expenses
Some expenses have both a business and a private element. In these cases, you can only claim the business portion.
Vehicle expenses
If you use a vehicle for both business and private purposes, you can only claim the business portion. IRD requires you to keep a logbook for at least 90 consecutive days to establish the business use percentage. See our detailed guide on vehicle logbook rules for NZ tax claims. Once established, you can use that percentage for three years before needing to re-establish it.
The deductible portion covers fuel, insurance, registration, repairs, and depreciation.
Home office expenses
If you work from home, you can claim a portion of your home running costs — power, internet, rates, insurance, and mortgage interest (if you own the property). The portion is calculated based on the floor area used for business as a percentage of total floor area.
IRD has a square metre rate method that simplifies this calculation. For the 2025–2026 year, the rate is $53.10 per square metre of dedicated workspace, plus a portion of actual costs for shared areas.
Phone and internet
If you use your personal phone or home internet for business, you can claim the business portion. A reasonable estimate based on actual usage is acceptable — IRD does not require you to itemise every call.
Meals and entertainment
This is one of the most misunderstood areas. The rules are:
- Entertainment with a business purpose (client lunches, team functions) — 50% deductible
- Meals while travelling for business — 100% deductible
- Meals at your regular workplace — not deductible (this is a private expense)
- Staff Christmas parties and similar functions — 50% deductible (and may attract FBT)
The 50% rule catches many business owners out. Even a genuine client lunch is only 50% deductible.
Capital vs Revenue: An Important Distinction
Not all business costs are deductible in the year they are incurred. The distinction between capital expenditure and revenue expenditure matters significantly.
Revenue expenditure — costs that are recurring and do not create a lasting asset — is fully deductible in the year incurred. This includes rent, wages, consumables, and most subscriptions.
Capital expenditure — costs that create or improve a long-term asset — is not immediately deductible. Instead, it is depreciated over the asset's useful life. Examples include:
- Machinery and equipment
- Vehicles
- Computers and technology (over a certain value)
- Leasehold improvements
- Goodwill
IRD publishes depreciation rates for different asset types. Your accountant will calculate the annual depreciation deduction based on the asset's cost and its applicable rate.
Low-value assets (under $1,000) can be written off immediately rather than depreciated — this is a practical concession that avoids the administrative burden of depreciating small items.
Expenses That Are Not Deductible
Some costs are specifically excluded from deductibility, regardless of their connection to the business:
- Income tax — the tax you pay on your profits is not deductible
- Fines and penalties — IRD penalties, court fines, and similar costs are not deductible
- Private and domestic expenses — groceries, personal clothing, family holidays
- Capital losses — losses on the disposal of capital assets (with some exceptions)
- Drawings — money you take out of the business for personal use is not an expense
What IRD Looks for in an Audit
If IRD audits your expense claims, they will typically look for:
- Documentation — receipts, invoices, and records that support the claim
- Business purpose — evidence that the expense was incurred for business reasons
- Reasonableness — whether the amount is reasonable given the nature of the business
- Consistency — whether your claims are consistent year to year
The most common audit triggers for expense claims are:
- High entertainment claims relative to revenue
- Vehicle claims without a logbook
- Home office claims that seem disproportionate
- Expenses that appear personal in nature (travel to holiday destinations, luxury items)
Record-Keeping Requirements
IRD requires you to keep records that support your tax return for seven years. For expense claims, this means:
- Receipts or invoices for all significant expenses
- Bank statements showing payments
- Logbook records for vehicle claims
- Home office calculations and floor area measurements
- Any contracts or agreements relevant to the expense
Digital records are acceptable — you do not need to keep paper copies. Most accounting software allows you to attach receipts directly to transactions, which makes record-keeping straightforward.
Getting Your Expense Claims Right
The difference between a well-managed expense claim and a poorly managed one can be thousands of dollars in tax — either through missed deductions or through claims that do not hold up under scrutiny.
At Eastmure & Associates, we review expense claims as part of our annual compliance work and flag anything that needs attention before the return is filed. We also advise on structuring your expenses to maximise legitimate deductions within the rules.
If you want a structured review to reduce business expenses without hurting growth, our advisory partner Ridgeline Advisory can help.
For a practical checklist, see how to reduce business expenses in NZ.
For a broader look at what you can claim across all income types, see our guide: What Can I Claim on Tax in NZ?
Need help with your accounts or tax? Contact Eastmure & Associates. Looking at the bigger picture for your business? See our Business Advisory page.
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Written by
Peter Eastmure
Peter Eastmure is a Christchurch-based accountant and director of Eastmure & Associates. He advises small businesses, medical professionals, and property investors across New Zealand on tax, compliance, and business strategy.
