Small Business Tax Deductions NZ 2026: Complete Guide

Claiming all legitimate tax deductions is essential for reducing your tax bill and improving cash flow. This comprehensive guide covers every deduction available to New Zealand small businesses in 2026.

Home Office Deductions

If you work from home, you can claim a portion of household expenses. The IRD accepts two methods:

Method 1: Square Metre Rate

Calculate the percentage of your home used exclusively for business:

• Measure your dedicated office space in square metres
• Divide by total home floor area
• Apply this percentage to eligible expenses

Example: 12m² office in a 120m² home = 10% of expenses claimable

Method 2: IRD Square Metre Rate

For the 2026 tax year, the IRD allows $5.20 per square metre per week for home office expenses. This covers:

• Electricity
• Heating
• Insurance
• Rates

Claimable Home Office Expenses

Vehicle Expenses

If you use a vehicle for business, you can claim expenses using one of two methods:

Method 1: Actual Costs

Track all vehicle expenses and claim the business use percentage:

• Fuel
• Registration and licensing
• Insurance
• Repairs and maintenance
• Warrant of Fitness
• Depreciation (see rates below)
• Finance costs (interest on car loan)

Keep a logbook for at least 3 months to establish your business use percentage. Update every 3 years or when usage patterns change significantly.

Method 2: IRD Kilometre Rate

For the 2026 tax year:

• Tier 1 (first 14,000 km): 99 cents per kilometre
• Tier 2 (over 14,000 km): 36 cents per kilometre

This rate covers all vehicle running costs including depreciation. Simply track business kilometres travelled.

Equipment and Asset Depreciation

Business assets are depreciated over their useful life. Common depreciation rates for 2026:

Low Value Assets

Assets costing $1,000 or less (GST exclusive) can be fully expensed in the year of purchase rather than depreciated. This is a valuable way to claim immediate deductions on small equipment purchases.

Staff and Contractor Costs

• Wages and salaries: Fully deductible including holiday pay, sick leave, and KiwiSaver contributions
• Contractor payments: Fully deductible (ensure you have correct withholding tax documentation)
• ACC levies: Fully deductible
• Staff training: Fully deductible if related to current role
• Staff amenities: Tea, coffee, and kitchen supplies for staff use

Professional Services

• Accountant fees: Fully deductible
• Legal fees: Deductible if business-related (not capital expenditure)
• Bookkeeping services: Fully deductible
• Business consulting: Fully deductible
• Industry association memberships: Fully deductible

Marketing and Advertising

• Website costs: Hosting, domain names, and maintenance are fully deductible. Major development may need to be capitalised.
• Google Ads and Facebook Ads: Fully deductible
• Print advertising: Fully deductible
• Business cards and brochures: Fully deductible
• Signage: May be capitalised if significant value
• Trade show and event costs: Fully deductible

Insurance

Business insurance premiums are fully deductible:

• Public liability insurance
• Professional indemnity insurance
• Business interruption insurance
• Product liability insurance
• Cyber insurance
• Key person insurance (conditions apply)

Travel Expenses

Domestic Travel

• Accommodation: Fully deductible for business trips
• Meals: Deductible when travelling overnight for business
• Transport: Flights, rental cars, taxis, and rideshare for business purposes

International Travel

For overseas business travel, apportion costs if the trip includes personal time. Keep detailed records of business activities conducted.

Entertainment Expenses

Entertainment is generally only 50% deductible. This includes:

• Client meals and drinks
• Corporate hospitality events
• Staff social events (50% deductible)
• Conference dinners

Exception: Light refreshments at meetings (tea, coffee, biscuits) are 100% deductible.

Bad Debts

If a customer does not pay and you have taken reasonable steps to collect the debt, you can write it off as a bad debt deduction. Requirements:

• The income must have been previously included in your tax return
• You must have made genuine attempts to recover the debt
• The debt must be genuinely uncollectable

What You Cannot Claim

These expenses are NOT tax deductible:

• Personal expenses: Even if paid from a business account
• Entertainment exceeding 50%: The non-deductible portion
• Fines and penalties: Including parking tickets and speeding fines
• Political donations: Not deductible
• Capital purchases: Must be depreciated instead
• Private use portion: Of mixed-use assets
• Income tax: Your own income tax payments

Record Keeping Requirements

The IRD requires you to keep records for 7 years. Essential records include:

• Invoices (issued and received)
• Bank statements
• Receipts for all expenses
• Vehicle logbooks
• Asset registers
• Employment records
• Contracts and agreements

Summary

Claiming all legitimate deductions is essential for minimising your tax liability. Focus on maintaining good records throughout the year, and work with a qualified accountant to ensure you are claiming everything you are entitled to.

The key areas to review are home office expenses, vehicle costs, depreciation on assets, and professional services. These often contain missed deductions that can significantly reduce your tax bill.