What business expenses can I deduct in New Zealand?
New Zealand businesses can deduct most expenses incurred wholly or partly for earning business income. Key rules: meals and entertainment are 50% deductible, home office requires floor area apportionment, vehicles need a logbook or 25% private-use adjustment, and mixed-use assets must be apportioned based on actual use.
Detailed Explanation
## Business Expense Deductions in New Zealand
### The General Rule
Under the Income Tax Act 2007, a business expense is deductible if it is incurred in deriving assessable (taxable) income or in carrying on a business for the purpose of deriving assessable income. The expense must be genuine, supported by documentation, and not specifically prohibited by the Act.
### Meals and Entertainment (50% Rule)
Meals and entertainment with a business purpose are 50% deductible under the Entertainment Expenditure rules. This includes: business lunches and dinners with clients, team meals and social functions for employees, hospitality at conferences, and food and drink at promotional events. The 50% limit applies regardless of how business-focused the event is — there is no way to claim 100% on meals under the entertainment provisions. Exceptions allowing 100% deduction include: food provided to employees while travelling away from home overnight, and meals in a remote location where no alternative is available.
### Home Office Expenses
If you work from home, you can deduct a proportion of household running costs using the floor-area method:
(Business floor area / Total floor area) x (Business use time / Total time) x Total household costs.
Deductible costs include: rent or mortgage interest (not principal), rates, insurance, power and gas. Note: building depreciation is not claimable on a private home (buildings depreciate at 0% for residential property). Mortgage principal is not deductible.
### Vehicle Expenses
For vehicles used partly for business and partly privately, two approaches apply:
Logbook method
keep a logbook for a minimum of 90 consecutive days every three years. Record every trip — date, distance, destination, business purpose. The logbook establishes your business-use percentage, applied to all vehicle running costs for the full year and the following two years.
25% (non-logbook) method
if you do not keep a logbook, IRD permits a 25% business-use deduction for most vehicles. No record-keeping required beyond evidence of total running costs.
Deductible vehicle costs: fuel, insurance, registration, tyres, repairs and maintenance, WOF costs, and depreciation. Parking fines are not deductible. Commuting (home to regular workplace) is not deductible.
### Depreciation
Capital assets (computers, machinery, equipment, furniture) are depreciated over their useful life using IRD's published rates. Methods: diminishing value (DV) or straight line (SL). Assets costing NZD 1,000 or less (excluding GST) can be written off immediately as a low-value asset.
### Professional Development and Subscriptions
Courses, seminars, memberships, and subscriptions that maintain or improve skills used in your current business are fully deductible. Costs to gain a new qualification for a different career are not deductible.
### What Cannot Be Deducted
Personal living costs, penalties and fines, capital expenditure (must be depreciated), the private portion of mixed-use expenses, life insurance premiums on the business owner's own life, and drawings or dividends paid to the owner.
Source: https://www.ird.govt.nz/income-tax/income-tax-for-businesses-and-organisations/types-of-business-expenses
Real-World Examples
Consultant's home office
A consultant uses a 12 sqm office in a 90 sqm home exclusively for work 5 days per week. Annual household costs: rent NZD 24,000, power NZD 1,800, insurance NZD 1,200. Floor ratio = 12/90 = 13.3%. Time ratio = 5/7 = 71.4%. Deductible = NZD 27,000 x 13.3% x 71.4% = NZD 2,564.
Tradesperson's vehicle (logbook method)
An electrician keeps a 90-day logbook showing 78% business use on their ute. Annual running costs: fuel NZD 5,200, insurance NZD 1,800, servicing NZD 900, registration NZD 350. Total NZD 8,250 x 78% = NZD 6,435 deductible. Plus depreciation on the ute's book value at the 30% DV rate.
Software company's meals and entertainment
A SaaS company spends NZD 3,600 on client dinners with genuine sales discussions. Deductible = NZD 3,600 x 50% = NZD 1,800. For GST purposes, only 50% of the GST on entertainment is claimable: NZD 3,600 x 3/23 x 50% = NZD 235 GST claimable.
Common Mistakes to Avoid
- Claiming 100% of client meal costs — the 50% entertainment limit is absolute regardless of how business-focused the meeting was
- Depreciating a laptop purchased for under NZD 1,000 — assets under NZD 1,000 (ex GST) can be written off immediately in the year of purchase
- Claiming home internet and power at 100% — these are mixed-use costs requiring apportionment; only the business proportion is deductible
- Treating ordinary clothing as a business expense — clothing is only deductible if it is a uniform, protective gear, or so specifically job-distinctive it would not be worn as normal clothing
Frequently Asked Questions
Can I claim GST on entertainment expenses?
Yes, but only at 50%. The GST Act mirrors the income tax entertainment rules. You can only claim input tax credits on 50% of entertainment expenditure. The calculation uses the GST fraction of 3/23 on the entertainment spend, then multiplied by 50%.
Is the cost of a mobile phone deductible?
Yes, the business proportion. If your phone is used 80% for business and 20% personally, you can deduct 80% of the monthly plan cost and 80% of the purchase cost (depreciated over the phone's useful life or immediately if under NZD 1,000 excluding GST).
Can I deduct the cost of studying for a new qualification?
Only if the qualification directly maintains or improves skills in your current business or profession. Studying for a new career is not deductible. An accountant studying for a tax law paper to enhance their current practice: deductible. The same accountant studying for a nursing degree: not deductible.
Are donations deductible for a business?
Businesses can claim a deduction for charitable donations equal to the amount of profit derived from business activities, up to the amount donated. The donation must be to an approved donee organisation (registered charity). Any excess can be claimed as a tax credit by the individual shareholder at 33.33 cents per dollar donated.
How long do I need to keep expense receipts?
Seven years from the end of the income year to which the expenses relate. This aligns with IRD's 4-year review period plus margin. For physical assets depreciated over many years, keep purchase records for 7 years after the asset is fully written off or sold.
Practical Tips
- Use a dedicated business bank account and business credit card so every business transaction is captured automatically — this eliminates the risk of missing deductions and makes end-of-year accounting much faster.
- Take a photo of every paper receipt immediately and save it to cloud storage or accounting software — IRD accepts electronic copies of receipts as long as they are clear and retrievable.
- Complete your vehicle logbook properly for at least 90 days once every three years. The 25% non-logbook method is convenient but costs you real deductions if your actual business use is higher.
- Review your asset register at year-end and check whether any assets have been fully depreciated. Fully depreciated assets still in use are worth NZD 0 on the books but may need to be recorded for eventual disposal.
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