Maximise your 2026 tax return with the right small business deductions

Whether you’re a sole trader, manage a small team, or operate a home-based business, understanding what expenses you can claim helps reduce your taxable income and keep more money in your business. This guide covers small business tax deductions in New Zealand for 2026, outlining what expenses you can claim, key tax-saving tips (including the new 20% Investment Boost), and how to stay compliant with Inland Revenue (IRD) regulations.

If you’re a tradie, check out The Ultimate Guide to Tradies Tax Deductions for 2026, which covers industry-specific deductions. For more general tax strategies beyond deductions, see How to tackle NZ tax time like a pro – A small business guide.

Note: This guide is designed for self-employed individuals and sole traders (terminal tax for most is due 9 February 2026). Please note that this information is general in nature and does not constitute tax advice. You should consult a qualified tax professional for advice specific to your circumstances.

What is a tax deduction for the IRD?

A tax deduction reduces your taxable income, meaning you pay less tax on your earnings. In New Zealand, Inland Revenue (IRD) allows small business owners to claim deductions for business expenses as long as they meet specific rules.

When you file your tax return, you subtract eligible business expenses from your total income before calculating how much tax you owe. The lower your taxable income, the less tax you pay.

Example: If your business earns $80,000 in a year but you have $20,000 in deductible expenses, you’ll only pay tax on $60,000.

IRD’s rules for claiming business expenses

To be deductible, an expense must be:

• Directly related to earning income – It must be a genuine business cost, not personal spending.
• Properly documented – Keep receipts, invoices, and records for at least seven years in case IRD requests proof.
• Claimed correctly – If an expense is partly for business and partly personal (e.g., your phone bill), you can only claim the business portion.

What if you’re GST-registered?

If your business is registered for GST, you claim GST separately on your GST return, and deductions on your income tax return apply only to the GST-exclusive amount.

Example: If you buy a laptop for $2,300 (including GST), you claim back the $300 GST on your GST return. Your business expense deduction for income tax is $2,000.

Tip: If you claim the Investment Boost, remember to apply the 20% deduction to the GST-exclusive cost of the asset.

Tax rates for the 2025/26 tax year

Major updates to New Zealand’s tax brackets are now fully in effect for the 2025/26 tax year, which could affect how much tax you pay as a sole trader or self-employed business owner. If you’re a sole trader, your business income is taxed at personal income tax rates.

2025/2026 Income Tax Rates for NZ Small Business Owners

Use IRD’s tax rate calculator to find your exact tax obligations.

Key tax rules for small business owners in 2026

• Provisional Tax: If your residual income tax exceeds $5,000, you must pay provisional tax in instalments throughout the year.
• GST Registration: You must register for GST if your business earns (or is expected to earn) over $60,000 per year.
• Late Filing Penalties & Interest: IRD charges Use-of-Money Interest (UOMI) on overdue tax payments. As of 16 January 2026, the underpayment interest rate is 8.97% per annum. Missing deadlines can be costly, so ensure your terminal tax is paid by 9 February 2026.
• Low-Value Asset Write-off: You can claim an immediate tax deduction for assets costing $1,000 or less (GST exclusive for GST-registered businesses).

New for 2026: The 20% Investment Boost

Planning a major purchase for your business? For new assets first available for use in your business on or after 22 May 2025, you can now claim a one-off 20% upfront deduction of the cost. Standard depreciation then applies to the remaining 80%.

Example: Purchasing a $10,000 asset (ex. GST)

Without the Investment Boost, a $10,000 asset with a 20% depreciation rate would typically allow for a $2,000 deduction each year. With the Investment Boost, you can claim $3,600 in the very first year. While the total amount you claim over the life of the asset stays the same, the Boost allows you to claim more of that value upfront to support your current cash flow.

Quick Tips for Claiming

• Check eligibility: The asset must be new (or new-to-NZ) and depreciable for tax purposes.
• Timing is key: It applies to assets first available for use between 22 May 2025 and the end of your financial year (31 March 2026 for most).
• No double-dipping: You cannot claim the Investment Boost on assets you’ve already fully written off under the $1,000 low-value asset threshold (which usually offers the better immediate tax benefit for smaller purchases).

Read our full guide on how to claim the 20% Investment Boost

What business expenses can you claim in New Zealand?

While not every cost is deductible, many everyday operating expenses qualify – provided they are genuine business costs and meet IRD’s deduction rules.

Here’s a list of deductible business expenses NZ small business owners can claim in 2026:

1. Business operating expenses

These are the essential costs that keep your business running day-to-day. You can typically deduct:

• Rent or lease costs for business premises
• Utilities (electricity, water, internet, and phone)
• Office supplies (stationery, printing, and software subscriptions like cloud accounting or AI tools).
• Business insurance (public liability, professional indemnity, and contents insurance)
• Professional fees, such as those paid to accountants for tax prep or lawyers for business contracts (if under $10,000).
• If you work from home, you may be able to claim a portion of these expenses – see the home office deductions section below.

2. Vehicle and travel expenses

If you use a vehicle for business purposes, you can claim:

• Fuel and maintenance costs.
• Registration and insurance.
• Depreciation (if you own the vehicle).
• Lease payments (if you lease a business vehicle).

Claiming via the kilometre rate method

For the 2025/2026 tax year, the IRD has updated the Tier 1 rates (for the first 14,000km) to reflect different vehicle types. If you use your personal vehicle for business, you can claim these per-kilometre rates:

If you use your vehicle for both business and personal use, you can only deduct the business portion. The logbook method is a common way to track mileage for business trips.

For business-related travel, you may also be able to deduct:

• Domestic and international flights
• Accommodation costs
• Rental car hire
• Business-related meals:
  • 100% Deductible: Meals you buy while travelling for business, provided you are eating alone.
  • 50% Deductible: Any meal where you host a client, business contact, or staff member while travelling.

Entertainment reminder: Most entertainment expenses, like taking a client to a sporting event or hosting a work party, are only 50% deductible because they are considered to have a significant private element. Check IRD’s guidelines to see what qualifies.

3. Equipment, tools, and assets

Laptops, phones, office furniture, and machinery used for business can be claimed as deductions. However, the way you claim them depends on the cost and whether the asset is new:

• Under $1,000: You can claim the full amount immediately as an expense in the year of purchase.
• Over $1,000: You must typically depreciate the cost over the asset’s useful life.
• New Assets (Investment Boost): For new assets first available for use on or after 22 May 2025, you can now claim a one-off 20% Investment Boost deduction upfront. You then claim standard depreciation on the remaining 80% of the cost.

Check IRD’s depreciation rates to ensure you’re applying the correct percentages for each item.

4. Employee wages and KiwiSaver contributions

If you have employees, you can deduct:

• Salaries and wages paid to staff
• Compulsory KiwiSaver employer contributions (minimum 3%)
• ACC levies paid on behalf of employees
• Payments to contractors may also be deductible, but ensure they are genuinely independent contractors under IRD rules.

5. Marketing and advertising costs

To help grow your business, you can deduct expenses related to:

• Website design, hosting, and maintenance
• Digital and social media advertising
• Print advertising (newspapers, magazines, billboards)
• Promotional materials (business cards, signage, flyers)
• If you invest heavily in marketing, track expenses carefully to maximise deductions.

6. Professional services and memberships

Hiring professionals to help manage your business? Their fees are typically deductible, including:

• Accountants and bookkeepers (for tax preparation and business advice)
• Legal fees (for contracts, business setup, or disputes)
• Industry memberships and trade associations
• Ongoing business coaching or training may also be deductible – see the training section below.

Pro-tip for 2026: You can claim a full deduction for business-related legal fees if your total legal spend for the year is $10,000 or less. If it exceeds this, some costs may need to be depreciated instead.

7. Home office expenses

If you run your business from home, you may be able to claim a portion of household expenses related to your workspace, including:

• Power and gas
• Internet and phone
• Mortgage interest or rent
• Office furniture and equipment

There are two main ways to calculate your home office deduction:

1. Actual cost method:

You claim a percentage of total household expenses based on the size of your home office. For example, if your home office takes up 10% of your home’s floor area, you may be able to claim 10% of eligible costs.

2. Square metre rate method:

Alternatively, you can use the IRD’s fixed square metre rate to simplify your claim. The IRD square metre rate for the 2024/25 income year is $55.60 per square metre. (Note: The IRD will publish the finalised 2025/26 rate in May 2026).

This rate covers costs like electricity, gas, internet, and home and contents insurance. It does not include rent, mortgage interest, or council rates – these must be calculated separately based on the portion of your home used for business.

Example:

If your home office is 10m², your total claim using the square metre rate would be: 10 x $55.60 = $556.00

Remember to keep records of your home office usage to support your claim.

8. Interest and banking fees

You can deduct interest on business loans, overdrafts, and credit cards, as well as fees related to:

• Business bank accounts
• Loan establishment fees
• Merchant service fees (e.g., credit card processing costs)

Make sure any loan is strictly for business purposes – personal loans used for business may not be fully deductible.

Important for 2026:

Make sure any loan is strictly for business purposes. If you use a personal loan or credit card for business expenses, you can only deduct the interest for the portion used for the business – proper records are essential to prove this to the IRD.

9. Training and education

Upskilling yourself or your employees? Work-related training expenses can be deducted, including:

• Online courses and certifications that maintain or improve skills required for your current role.
• Business coaching and mentorship programs focused on improving business management or productivity.
• Industry conferences and workshops that directly relate to your field of work.

General self-improvement courses (e.g., leadership coaching for a non-management role) or training to start a completely different career may not be deductible. To be claimable, the training must have a direct connection to generating income in your current business activities.

10. Bad debts

If a client fails to pay an invoice, you may be able to write off the unpaid amount as a tax deduction, but only if:

• You have made reasonable efforts to recover the debt
• The debt is officially written off before 31 March (end of the tax year)

Keep records of unpaid invoices and collection attempts to support your bad debt claim.

Pro-tip for GST: If you are GST-registered and already paid the GST to the IRD when you issued the original invoice, remember to make a GST adjustment in your next return to claim that portion back.

How to maximise your tax deductions

Understanding NZ small business tax write-offs can help you claim every deduction you’re entitled to.

1. Plan your expenses before the tax year ends

If you’re considering buying new equipment, tools, or software, making the purchase before 31 March means you can claim the deduction in the current tax year.

Prepayment tip: You can prepay some expenses (like rent or insurance) to reduce this year’s bill, but the IRD has limits. Generally, you can prepay up to $12,000 for insurance (for up to 12 months) and up to $26,000 for rent (for up to 6 months) and still claim the full deduction immediately.

2. Use tax losses to your advantage

If your business made a loss this year, you can carry it forward to offset future profits, reducing your tax bill when your income increases. This is especially useful for new businesses still in the early stages of growth.

For sole traders: Report the loss in your IR3 return. The IRD will track this amount and apply it to lower your taxable income in following years.

3. Review past returns for missed claims

The IRD allows you to amend previous tax returns, so if you realise you forgot to claim a deduction in a past year, you may be able to adjust your return and get money back. This applies to expenses like home office deductions, professional fees, and business loan interest.

Timing: For most small businesses, you generally have a four-year window from the end of the relevant tax year to request an amendment and claim back missed deductions like home office costs or business loan interest.

4. Talk to a tax professional if you’re unsure

Even if you manage your own taxes, an annual check-in with an accountant can help ensure you’re not missing key deductions or making errors that could lead to penalties. The best part? Accounting fees are tax-deductible!