A cost is deductible when it's connected to earning your business income and it isn't private or capital in nature. That sounds simple, and for most invoices it is. The trouble usually comes from three places: costs that are partly private, purchases that should be treated as assets, and claims with no paperwork behind them.
The everyday costs
For most small New Zealand businesses, these are usually straightforward:
- accounting, bookkeeping and tax agent fees
- software subscriptions such as Xero, Microsoft 365 or job-management apps
- advertising, your website and Google or Meta ads
- business insurance, rent for business premises, and bank fees
- materials and stock used in the work
- wages, contractor payments and employer KiwiSaver contributions
Keep the invoice and make sure it's in the business name where possible. If the reason for a cost isn't obvious from the invoice, add a short note in Xero.
Mixed-use costs need a split
Your phone, car, internet and home office are often used for both business and private life. Claim only the business share, and keep a record of how you worked it out.
For a vehicle, that usually means a logbook kept for a representative 90-day period, which can then be used for up to three years if your use doesn't change much. Without a logbook, sole traders can generally claim no more than 25% business use. For the home office, IRD's square metre rate ($57.30 for 2025–26) is often the simplest option.
Assets: the $1,000 line
If something costs **$1,000 or less** (excluding GST if you're registered), you can usually claim it in full in the year you buy it. That covers most phones, tools, office chairs and smaller pieces of equipment.
Above $1,000, the item is generally depreciated over its useful life using IRD's rates. Buying several items from the same supplier at the same time can count as one purchase for this test, so a $2,400 set of matching office desks doesn't become three $800 claims.
Investment Boost for new assets
For new assets bought on or after 22 May 2025, Investment Boost lets you deduct 20% of the cost upfront, on top of normal depreciation on the remaining 80%. It applies to new plant, equipment, vehicles and commercial buildings. It doesn't apply to residential buildings, land, or second-hand assets that have already been used in New Zealand. For a tradie buying a new $50,000 ute, that's a $10,000 deduction in the first year before ordinary depreciation.
What usually isn't deductible
Fines and penalties, your own clothing (unless it's protective gear or a uniform with your logo), private travel, and most entertainment beyond the 50% rules. Income tax itself isn't deductible either.
A monthly ten-minute check
Once a month, look over anything unusual in Xero and ask: is this connected to earning income, is there a private element, and is it an expense or an asset? Fixing a coding error in July is much easier than finding it the following May.