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Claiming expenses
To help reduce your tax bill, you can offset many of your business expenses against your business income. You'll need to keep good records and hold on to your receipts.
Getting a tax agent or accountant to complete your return may end up saving you money.
They know all the things you can claim for.
What are expenses?
Expenses are the costs you incur in the day-to-day running of your business. At tax time, your total profit (the amount you need to pay tax on) is your taxable income minus the expenses you can claim — so the more you can claim, the less tax you have to pay.
Business expenses(external link) — Inland Revenue
Business expenses are:
- Day-to-day revenue expenses for running your business, eg advertising or wages.
- Assets you buy, eg machinery, computers or tools, which are called capital expenses. Note: items that cost $1000 or more must usually be depreciated.
Generally, you claim your revenue expenses in the year you incur them, and you depreciate capital expenses over time.
GST
If you're registered for GST, your income tax return will exclude GST on your income and expenses — GST is accounted for in your GST return.
If you're not registered for GST, your income tax return will include GST on your expenses only.
Watch: How to claim business expenses
Video transcript: How to claim business expenses
[Visual: The video opens with a female presenter in a pink blazer against a blue background.]
When filing your taxes, it's likely your business will have expenses.
[Visual: the screen cuts to a close up shot of a car dashboard, then to a man at a desk, then to a woman in a home office.]
Whether that's a business vehicle, an accountant, or your home office. You should understand what opportunities there are to erase the financial strain come tax season.
[Visual: the screen cuts to tax forms and a post saying “Tax time!”, then to a cartoon man holding a phone with cartoon money, receipts, a wallet and calculator falling around him”.]
Expenses describe how much you've spent on your business.
[Visual: the screen cuts to a cartoon man at a desk with a laptop. He has six arms extending out holding cash notes and coins are in the background. The right side of the screen shows the text “Pay as You Earn (PAYE). Either a system of income tax withholding by employers, or an income-based system for student loan repayments.” Which is credited to Investopedia.]
For PAYE incomes, there are a few deductions that you can make, including
[Visual: the screen cuts to a profile shot of the presenter.]
the cost of an accountant, income protection insurance, commission charged against your income, money borrowed to invest, and use of money interest paid to Inland Revenue.
[Visual: the screen cuts to an infographic by Inland Revenue and business.govt.nz. It is titled “Work from home? Make sure you claim these expenses”. The body text reads “If you use your home for business – whether you’re a contractor, sole trader, in partnership or own a company – you can claim a portion of household expenses. You can claim 100% of expenses that are solely for business purposes eg a business phone line. For the rest, you can claim the proportion of your house that you use for work. In this example, the house is 100 sqaure metres and the office 10 square metres – 10% of the total area. So, the owner can claim 10% of expenses not solely for business, eg a power bill. Whatever you claim, remember to keep a record of each item. The image shows a house with notes on each of the types of expenses you can claim.]
For business expenses, you can claim things if they help generate income for your business, and do not provide significant personal benefit.
[Visual: the screen cuts to a cartoon character using a phone to take a photo of a receipt.]
For these items, you need to have a record of the purchase.
[Visual: the screen cuts to a shot moving quickly through an aisle in a store with stationary and technology on the shelves.]
Most times, the line between personal and business expenses is clear.
[Visual: the screen cuts to a woman typing credit card details on a laptop, then to a mechanic using a laptop in a workshop.]
If you buy something to be used for your business, it's a deductible business expense.
[Visual: the screen cuts to a man sitting at a desk with a headset on using a laptop.]
If you buy something to use privately, that's a personal expense.
[Visual: the screen cuts to a profile shot of the presenter.]
But sometimes there is overlap between business and personal. Such as a laptop that you use partially for business, and partially for personal use.
[Visual: the screen cuts to a man typing on a laptop in a café, then to a man using a laptop in an office.]
If this is the case, you can only claim a deduction for the amount that you use for business.
[Visual: the screen cuts to a profile shot of the presenter.]
So, if you use the laptop for business 75% of the time, and for personal use 25% of the time, you can only deduct 75% of the laptop.
[Visual: the headings “75% Business” and “25% Personal” appear on screen as the presenter speaks them. “25% Personal” fades away leaving “75% Business” on screen.]
[Visual: the screen cuts to show different expenses as the presenter lists them. First is an interior shot of a house living room, then to two plasterers working on an indoor building site, then to a man in a suit sitting on a couch, then to a pile of stationary, then a cooling fan on a PC, then to a laptop screen showing code, and finally to a group of people sitting around a table with the words “Digital Marketing” on a computer.]
Common expenses to claim include rent, subcontractors, accountants, stationary, computer costs, software insurance, and advertising.
[Visual: the screen cuts to a profile shot of the presenter.]
When it comes to home offices, you need to work off a similar principle to that used for the laptop.
[Visual: the screen cuts to a floorplan of a house, then to a woman typing on a computer in a home office.]
Work out the square meters of your house, and then deduct your working space to find the percentage you can claim.
[Visual: the screen cuts to a rack of spanners with a hand reaching for one.]
You can do this for a garage storing work tools, or something of a similar nature.
[Visual: the screen cuts to a profile shot of the presenter.]
Portions of your rent, mortgage, rates, maintenance, and home insurance can be claimed.
[Visual: the screen cuts to a shot of a car dashboard as it’s driving, then to a woman writing in a log book at a café, then to two people looking at their car with the bonnet open.]
If you have a business vehicle, use a log book to claim fuel expenses and claim a percentage for fuel, insurance, roadside assistance membership, and repairs.
[Visual: the screen cuts to a birds eye shot of a car driving along a gravel road.]
If you use a vehicle strictly for business use, you can claim all the expenses related to it.
[Visual: the screen cuts to a several receipts next to a laptop.]
Note that expenses can only be claimed once.
[Visual: the screen cuts to a profile shot of the presenter.]
For mileage, consider the distance travelled and identify the portion used for business, and calculate this percentage, as the amount differs when a certain distance threshold is met.
[Visual: the screen cuts to an interior shot of a taxi driving along, then a closeup of a car driving.]
If travel is a big part of your business, a mileage claim may make more sense than an expense claim.
[Visual: the screen cuts to a person sitting on a couch typing credit card details on a laptop.]
To better understand your obligations and opportunities, chat to your accountant, or visit Inland Revenue's website.
[Visual: the screen cuts to a full page of Inland Revenue’s website showing the page “Types of business expenses”. The URL for Inland Revenue’s website appears on the bottom left “ird.govt.nz”.]
[Visual: the screen cuts to a profile shot of the presenter.]
Take advantage of their resources, the user friendly RealMe interface, and get in touch with them if you are unsure about anything.
[Audio/Visual: the screen cuts to the Digital boost end frame showing the Digital Boost logo next to the words “Digital Boost”. Below this is the subheading “Want to know more? Visit digitalboost.co.nz”. The New Zealand Government logo is present on the bottom right of the screen.]
[Video ends.]
All self-employed people, including contractors and sole traders, can claim expenses against their income.
What you can claim for
Business expenses can include:
- vehicle expenses, transport costs and travel for business purposes
- rent paid on business premises
- depreciation on items like computers and office furniture
- interest on borrowing money for the business
- some insurance premiums
- work-related journals and magazines
- membership of professional associations
- home office expenses
- work-related mobile phones and phone bills
- stationery
- work uniforms
- tax agent’s fees.
It's a good idea to use Inland Revenue's vehicle logbook template — download this spreadsheet from the Tool for Business website.
Tool for Business downloads: Vehicle logbook template(external link) — Inland Revenue
If you own an investment property, expenses you can claim for include:
- repairs and maintenance (but not renovations that substantially improve the value of the property)
- professional services fees, like accountants, lawyers or property managers
- rates and insurance
- mortgage repayment insurance
- vehicle and travel expenses when you travel to inspect your property or do repairs
- depreciation on capital expenses, like whiteware, appliances or heat pumps
- legal fees involved in buying a rental property, as long as the expense is $10,000 or less.
Rental property expenses(external link) — Inland Revenue
How much can you claim?
You can't claim the whole cost of all items, even those only for business use. Some things you can only claim half for, eg some entertainment expenses. You can only claim 100% of the cost for an expense that’s entirely for business use.
If you have an expense that’s partly for your business and partly for your private use, you can claim the proportion that relates to your business.
Example:
If you spend half the time driving a vehicle to deliver goods and the other half for your own reasons, you can claim 50% of the travel costs for your business.
For some expenses, like business entertainment, eg client meals and staff functions, you can only claim half.
Entertainment expenses(external link) — Inland Revenue
Working from home
If you use an area of your home for your business, eg your study or garage, you can claim a portion of the household expenses, eg:
- rates
- power
- house and contents insurance
- mortgage interest if you own the home
- rent if you are renting the home.
You must keep invoices for these expenses.
How it works
If your home is 100 square metres and your working space is 10 square metres — 10% of the total area — you can claim 10% of expenses that are not solely for your business, eg your home phone line.
If you aren't using a separate area of your home for business, you'll need to take into account how much time you spend on your business and the area used.
If you're GST registered, the GST content on home office expenses can be claimed as they’re paid — in each GST return period — or at the end of your tax year. Mortgage interest and rent don’t include GST.
Using your home for business(external link) — Inland Revenue
Work from home? Claim these expenses
This is a text version of our claiming expenses visual guide. It's aimed at people who use screen readers, or who prefer to take in information by reading.
Work from home? Make sure you claim these expenses
If you use your home for business — whether you’re a contractor, sole trader, in partnership or own a company — you can claim a portion of household expenses. You can claim 100% of expenses that are solely for business purposes, eg a business phone line. For the rest, you can claim the proportion of your house that you use for work.
In this example, the house is 100 square metres and the office 10 square metres — 10% of the total area. So the owner can claim 10% of expenses not solely for business, eg a power bill. Whatever you claim, remember to keep a record of each item.
- Landline phone costs:
- 10%
- 50% if that’s how much you use for business purposes.
- 100% if it’s for business use only.
- Mobile phone costs:
- 10%
- 100% if it’s for business use only.
- 100% of office supplies, eg paper and pens.
- 100% of new furniture under $500 an item — items over $500 must be depreciated instead.
- 0% of food and drink, unless you’re entertaining for work.
- 10% of internet costs, but you can claim more if you can prove you use more for business.
- 0% of furniture and TV only for household use.
- 0% of vehicle expenses as household costs. Instead, use a logbook to track your business mileage.
- 10% of mortgage interest payments OR
- 10% of rent.
- 10% of security alarm bill.
- 10% of power and gas, but you can claim more than this if you can prove you use more for business.
- 10% for toilet rolls and hand soap.
- 0% of bedroom furniture
- 0% of satellite TV subscription unless it’s for business use.
- 10% of heating bill.
- 100% of magazine subscriptions for your business.
- 10% of lightbulbs.
Whether you’re a sole trader, contracting, in a partnership or own a company, you can claim business expenses to reduce your tax bill. Take this quiz to find out what you can claim for, and how much. When you’re done, follow the links in the answers for more details.
Pay for as many of your work-related expenses as possible through your business account.
This means you’ll have a paper — or electronic — trail at claims time. If you use accounting software, everything will be coded and added up automatically.
Guide to reducing your tax bill
For a text version of this visual guide, visit our How to reduce your tax bill page.
How to claim expenses
Whether you’re a contractor, sole trader or running a business, you claim your business expenses annually in your tax return. Deduct expenses from what you’ve earned from your business during the year.
To claim an expense, you must have a record of that expense, eg a receipt, or Inland Revenue may not allow the expense to be claimed.
At the end of the year your business accounts will need to be completed, totalling up all your income and expenses. When you file your tax return, you’ll either copy your income and expenses into your financial statements summary (IR10), or send Inland Revenue a summary of your accounts.
Using an accountant or bookkeeper, or accounting software can help you do your annual return correctly and claim the right expenses.
Keep track of receipts and invoices by stapling them to your monthly bank statement before filing it.
If you keep digital records, photograph your receipts and keep them with your other records — but you should keep the paper copies, too.
Keeping records
It’s easy to let filing and paperwork slip. But keeping good records makes it much easier to do your tax return — and will save you time in the long run.
Online accounting software services and mobile phone apps can help you record receipts and keep track of expenses.
You must keep your tax records for seven years. These must be in English, unless you get approval from Inland Revenue to use another language.
Record-keeping checklist(external link) — Inland Revenue
Common pitfalls
Avoid these common pitfalls when claiming expenses:
- Not separating your business and personal receipts — you need to know which ones to claim against your business tax return and your personal tax return (unless you're a sole trader).
- Getting rid of your receipts or invoices too soon — you must keep them for seven years.
- Not knowing what you can claim for.
