Business Expenses for Sole Traders NZ - Complete Guide
A plain-English guide to the business expenses sole traders can claim in New Zealand, including home office, vehicle costs, tools, GST, and record keeping.
Most sole traders in New Zealand pay tax on profit, not total sales. That means business expenses matter. If an expense is genuinely connected to earning your business income, it can usually reduce your taxable profit. If it is private, capital, or only partly business-related, the rules are tighter.
This guide covers the common expenses sole traders ask about: home office, vehicle costs, phone and internet, tools, subscriptions, insurance, entertainment, GST, records, and filing.
For a full tax estimate after expenses, use the TaxPop self-employed tax calculator.
Quick answer
A sole trader can claim expenses that are connected to earning business income. Some costs are fully deductible, some are partly deductible, and some must be depreciated over time.
| Expense type | Usually claimable? | Note |
|---|---|---|
| Business software and subscriptions | Yes | Claim the business portion |
| Phone and internet | Partly | Apportion business vs private use |
| Home office | Partly | Use actual costs or square metre method |
| Vehicle costs | Partly | Business use only; home-to-work travel is private |
| Tools and equipment | Yes | Low-value assets may be immediate deductions |
| Client meals and entertainment | Often 50% | Depends on the type of entertainment |
| Personal clothing | No | Normal clothes are private |
| Drawings | No | Taking money out is not an expense |
| Fines and penalties | No | Usually not deductible |
The core rule
Ask one question first: did this cost help you earn business income?
If yes, it may be deductible. If no, it is private and should stay out of your tax return. If the expense is mixed-use, claim only the business portion.
Examples:
- A Xero subscription used only for your business: 100% business.
- A mobile phone used 60% for clients and 40% personally: claim 60%.
- A laptop used for both business and personal life: claim the business portion and consider depreciation rules.
- Groceries for your family: private, not claimable.
IRD explains the same principle on its types of business expenses page.
Revenue expenses vs capital expenses
This is where sole traders often get caught.
Revenue expenses are day-to-day costs of running the business. These are usually deducted in the year you pay or incur them.
Capital expenses are assets or improvements that last longer than one year. These are usually claimed through depreciation, unless the low-value asset rule applies.
| Cost | Treatment |
|---|---|
| Monthly accounting software | Usually claim now |
| Business stationery | Usually claim now |
| Website hosting | Usually claim now |
| Laptop over $1,000 | Usually depreciate |
| Work vehicle | Usually depreciate or claim vehicle costs by method |
| Tool under the low-value threshold | May be immediate deduction |
From 17 March 2021 onward, the low-value asset threshold is generally $1,000. If you are GST-registered, the threshold is based on GST-exclusive cost. If you are not GST-registered, it is based on the GST-inclusive cost.
Common expenses sole traders can claim
Here are the expenses most sole traders should check before filing.
| Category | Examples | Claim approach |
|---|---|---|
| Office and admin | Stationery, printing, postage | Business portion |
| Software | Xero, payroll, design tools, scheduling apps | Business portion |
| Professional services | Accountant, bookkeeper, lawyer | Business portion |
| Marketing | Ads, website, SEO, flyers, photography | Business portion |
| Insurance | Public liability, professional indemnity | Business portion |
| Bank fees | Business account fees, merchant fees | Business portion |
| Education | Courses directly linked to your business | Usually business portion |
| Repairs | Repairs to business tools or equipment | Usually claim now |
| ACC levies | Business-related ACC levies | Usually claimable |
Legal fees can be tricky. Many business legal fees are deductible, and smaller legal expenses may be deductible under the $10,000 rule, but legal costs connected with buying capital assets or major structure changes can need different treatment. If it is material, check before filing.
Home office expenses
If you run your sole trader business from home, you can usually claim a fair portion of home costs. IRD allows a square metre option or an actual cost method.
For the 2025-26 income year, the square metre rate is $57.30 per square metre. That rate is for home office running costs. Premises costs such as rent, rates, and mortgage interest are handled separately using the business floor area percentage.
Example:
- You use 10 square metres mainly for business.
- Square metre claim: 10 x $57.30 = $573.
- Your workspace is 8% of the home.
- You may also claim 8% of allowable premises costs such as rent, rates, or mortgage interest, if they apply.
If you use the actual cost method, keep records and claim a fair business share of costs like power, internet, insurance, rent, rates, and mortgage interest. You cannot claim principal repayments on your mortgage.
IRD has more detail on home office expenses.
Phone and internet
Phone and internet are usually mixed-use. The clean way is to choose a reasonable business percentage and keep evidence.
Example:
- Monthly phone plan: $80.
- Business use: 70%.
- Monthly claim: $56.
- Annual claim: $672.
Do not claim 100% unless it is genuinely 100% business. A separate business phone or separate business internet connection is easier to justify than one shared household plan.
Vehicle expenses
Vehicle expenses are common, but they need care because private driving is not claimable. Travel from home to your normal workplace is generally private. Travel to clients, suppliers, jobs, meetings, and business errands may be business travel.
IRD sets kilometre rates each year. For the 2025-26 income year, the Tier One kilometre rates are:
| Vehicle type | Tier One rate | Tier Two rate |
|---|---|---|
| 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 One covers the first 14,000 km of business use. Tier Two applies after that.
There are three practical ways to claim vehicle costs:
- Keep a logbook and use IRD kilometre rates.
- Claim actual costs using business-use percentage.
- If no logbook is kept, the claim may be limited to 25% of vehicle running costs and IRD may ask you to support it.
Read the full TaxPop guide to the IRD mileage rate in NZ if vehicle use is a big part of your business.
Tools, equipment, and depreciation
Small tools and equipment may be deductible straight away if they meet the low-value asset rules. Larger assets are usually depreciated over their useful life.
Examples:
| Purchase | Likely treatment |
|---|---|
| $80 work diary | Claim now |
| $350 drill used only for business | Claim now |
| $1,800 laptop | Depreciate |
| $8,000 trailer | Depreciate |
| $25,000 van | Vehicle rules and depreciation |
From 22 May 2025, the Investment Boost lets businesses claim 20% of the cost of eligible new assets, then depreciate the remaining 80%. This does not mean every purchase should be claimed the same way. If the asset is low value, second-hand, private-use, or mixed-use, check the detail before filing.
IRD explains the rule on its Investment Boost page.
Meals and entertainment
Client meals and entertainment are not always fully deductible. For many self-employed entertainment expenses, including business meals with clients, you can claim 50% of the total cost.
Examples:
| Expense | Likely claim |
|---|---|
| Coffee with a client to discuss a job | 50% |
| Lunch with a client | 50% |
| Snacks for a paid workshop you run | May be 100% |
| Family dinner paid from business account | 0% |
| Meal while travelling overnight for business | Depends on facts |
If the meal or event has a private element, be careful. Keep the receipt and write down who attended and why it was business-related.
GST and business expenses
GST is separate from income tax. If you are GST-registered, you usually claim expenses net of GST for income tax, and claim the GST portion in your GST return where allowed.
If you are not GST-registered, you generally claim the full GST-inclusive cost for income tax.
You must register for GST if your taxable supplies are more than $60,000 in a 12-month period. Read the TaxPop guide to GST registration in New Zealand or use the GST calculator to check GST-inclusive and GST-exclusive amounts.
What sole traders cannot claim
Some costs feel business-related but are still private or not deductible.
| Expense | Why it is usually not claimable |
|---|---|
| Drawings | You are taking profit out, not paying a business expense |
| Personal groceries | Private living cost |
| Normal clothing | Private unless it is protective or a uniform-like business item |
| Gym membership | Usually private |
| Traffic fines | Penalty, not business expense |
| Home-to-work travel | Generally private commuting |
| Family holidays | Private unless a clear business portion is separated |
The rule is simple: keep the private part out. If a cost is mixed, split it fairly.
Records to keep
Keep records for at least 7 tax years. Good records make deductions easier to prove and make year-end less stressful.
Keep:
- invoices and receipts
- bank statements
- mileage logbook or travel records
- notes explaining business purpose for meals and travel
- asset purchase records
- GST records if registered
- home office calculations
- invoices you sent to clients
If you use accounting software, still make sure the source documents are stored properly. A bank feed alone is not always enough to explain what the expense was for.
How to file expenses
Sole traders usually file an IR3 individual income tax return. Your business income and expenses are included with your personal income.
In myIR, IRD may ask you to include an IR10 Financial Statements Summary or other financial details. Follow the prompts and keep the working papers that support the numbers you enter.
For step-by-step login help, see the TaxPop guide to IRD login and myIR.
Example: sole trader expense calculation
Maya is a freelance designer. During the year she invoices $92,000 plus GST. Her expenses are:
| Expense | Amount claimed |
|---|---|
| Software | $2,400 |
| Accountant | $1,200 |
| Home office | $1,850 |
| Phone and internet | $1,080 |
| Business travel | $2,300 |
| Laptop depreciation | $650 |
| Marketing | $3,000 |
| Total expenses | $12,480 |
Her taxable profit before any other adjustments is:
| Item | Amount |
|---|---|
| Business income | $92,000 |
| Less expenses | $12,480 |
| Estimated taxable profit | $79,520 |
Maya pays income tax on the profit, not the full $92,000. She may also need to plan for provisional tax if her residual income tax is over $5,000.
What provisional tax means
Provisional tax is not an extra tax. It is income tax paid during the year instead of waiting for one large bill after 31 March. IRD usually puts you into provisional tax when your residual income tax from your last return was more than $5,000.
For sole traders, this can feel confusing because no employer is taking PAYE out of each payment. If your business is profitable, IRD may ask you to pay income tax in instalments during the next tax year. Those instalments count toward your final income tax bill.
Use the provisional tax calculator or read how much tax sole traders pay in New Zealand for the next step.
How much should you set aside?
Expenses lower taxable profit, but they do not remove the need to budget for tax. Many sole traders set aside a percentage of every payment they receive so GST, income tax, ACC, and provisional tax do not arrive as a surprise.
A simple approach is:
- Set GST aside separately if you are GST-registered.
- Estimate income tax on profit, not sales.
- Allow for ACC levies.
- Review the percentage every few months.
See TaxPop's guide on how much tax to set aside as self-employed in NZ.
FAQs
Can sole traders claim home office expenses?
Yes, if part of the home is used for business and the claim is reasonable. You can use the square metre method or actual costs.
Can I claim my phone bill?
Yes, but only the business portion unless the phone is genuinely used only for business.
Can I claim my car?
You can claim business vehicle use. Private use and normal commuting are not claimable.
Can I claim coffee with a client?
Often 50%, if it is genuinely business-related and you keep the receipt and business purpose.
Can I claim tools under $1,000?
Usually yes if they meet the low-value asset rules and are used for business. GST registration affects whether the threshold is GST-exclusive or GST-inclusive.
Do I need an accountant?
Not always. But if you have mixed-use assets, a vehicle, employees, property, large equipment, or provisional tax, a tax agent can save mistakes.
What if I accidentally claimed something private?
Fix it as soon as possible. You may be able to amend your return in myIR or ask a tax agent to correct it.
Bottom line
Claim the costs that genuinely help you earn business income. Split mixed-use costs fairly, keep receipts, and be careful with vehicles, home office, meals, and larger assets.
Then estimate the tax on your profit using the self-employed tax calculator.
General information only - check IRD before filing or ask an accountant for your situation.