Understanding Tax Rules and Claimable Expenses for Small Business Owners in New Zealand

Running a small business in New Zealand—whether it’s a local café, boutique retail store, bar, or accounting firm—can be as rewarding as it is demanding. Beyond the daily hustle of serving customers and managing staff, there’s the less visible but equally crucial world of taxes and business expenses.

In this article, we break down the essential tax obligations, expense claim guidelines, and common pitfalls that New Zealand small business owners should be aware of to stay compliant and improve their bottom line.

1. Understanding Your Tax Obligations

Every business operating in New Zealand is subject to certain tax rules governed by Inland Revenue (IR). Knowing your obligations is the first step toward financial health.

Income Tax

If you run a business (as a sole trader, partnership, company, or trust), you need to file an annual income tax return. The current company tax rate is 28%, while individual tax rates for sole traders and partnerships range from 10.5% to 39% depending on income levels.

Businesses must declare all income earned during the tax year (1 April to 31 March) and claim allowable expenses to calculate their net profit.

Goods and Services Tax (GST)

If your business earns over $60,000 per year, you’re required to register for GST. GST is currently set at 15% and applies to most goods and services sold in New Zealand. GST-registered businesses must file returns every 1, 2, or 6 months, depending on their GST filing frequency.

You can claim back the GST on business-related expenses, which is a major advantage of registration.

Provisional Tax

If your income tax bill is more than $5,000, you’ll likely be required to pay provisional tax. This is a system that spreads out income tax payments throughout the year based on projected income.

This system helps reduce the burden of a large end-of-year tax payment but requires careful cash flow management.

2. Claimable Business Expenses

One of the biggest benefits of running a business is the ability to deduct business-related expenses. These deductions reduce your taxable income and ultimately lower the tax you owe.

Common Claimable Expenses in NZ

Below are typical deductible expenses for small businesses:

a) Rent and Utilities

• If you lease a premises, rent is fully deductible.

• Electricity, gas, water, and internet bills used for business are also deductible.

b) Home Office Expenses

• Many small business owners work from home or have an office at home. You can claim a portion of household expenses such as:

  • Power

  • Internet

  • Rates

  • Insurance

  • Rent or mortgage interest (if applicable)

You’ll need to calculate the portion of your home used for business — usually based on square meters.

c) Motor Vehicle Expenses

• Business use of a car is deductible. You can use either:

  • Actual costs method (logbook required), or

  • IRD mileage rate method (currently 95 cents per km for the first 14,000 km in 2025)

Make sure to maintain a vehicle logbook to prove business vs personal use.

d) Wages and Salaries

• Employee wages, KiwiSaver contributions, and holiday pay are all deductible.

• Don’t forget to include PAYE, which must be filed through payday filing.

e) Entertainment and Meals

• 50% of business-related meal and entertainment costs can be claimed (e.g. client lunches, staff Christmas parties).

• Fully deductible if the cost is incidental and consumed off-site (e.g. coffee with a client).

f) Advertising and Marketing

• Costs related to promoting your business are fully deductible: flyers, Facebook ads, Google listings, signage, branding etc.

g) Professional Fees

• Accounting, legal, and consultancy fees are deductible if incurred for the purpose of earning income.

h) Insurance

• Business-related insurance policies (public liability, vehicle, stock, fire, etc.) are deductible.

i) Depreciation

• You can claim depreciation on business assets like furniture, computers, and vehicles.

• Depreciation spreads the cost of an asset over its useful life.

j) Training and Development

• Business-related courses or staff training are generally deductible.

3. Industry-Specific Examples

Cafés & Bars

• Deduct cost of goods sold (ingredients, drinks, packaging).

• Kitchen equipment and coffee machines can be depreciated.

• Uniforms, aprons, and POS systems are deductible.

• Music licensing fees and Sky TV for customer entertainment may be partially deductible.

Retail Stores

• Inventory purchases are accounted for in cost of goods sold.

• Security systems, shop fittings, and EFTPOS rental fees are claimable.

• Staff uniforms and display equipment (e.g., mannequins, shelving) can be depreciated.

Accountants and Professional Services

• Subscriptions to accounting software (e.g., Xero, MYOB) are deductible.

• Continuing professional development (CPD) courses are fully claimable.

• Home office expenses often apply for small firms or sole traders.

4. Record Keeping Requirements

To claim deductions, you must keep good records. IRD requires businesses to keep tax records for 7 years, either digitally or in hard copy.

You must keep:

• Invoices and receipts

• Bank statements

• GST returns

• PAYE and payroll records

• Vehicle logbooks

• Home office calculations

Tip: Use accounting software (like Xero or MYOB) for automatic reconciliation and audit-proof records.

5. Avoiding Common Pitfalls

Many small businesses get caught out by simple mistakes. Here are some tips to avoid them:

a) Mixing Personal and Business Finances

Always keep a separate bank account for your business. This simplifies reconciliation, audit compliance, and helps you monitor cash flow more accurately.

b) Not Charging GST When Required

If you earn over $60,000 and haven’t registered for GST, IRD can charge you for unpaid GST retrospectively — plus penalties.

c) Over-Claiming Personal Expenses

Be cautious when claiming business expenses. For example:

• Only claim 50% of shared entertainment costs.

• Ensure vehicle expenses are supported by a logbook.

• Don’t claim personal clothing as business attire unless it has a company logo or is protective clothing.

d) Not Setting Aside Tax Payments

Failing to plan for tax can lead to debt and penalties. Use separate savings accounts to set aside income tax, GST, and PAYE.

e) Late Filing and Payments

IRD charges interest and late fees for missed payments or filings. Calendar reminders and accountant support can help ensure compliance.

6. Working with an Accountant

Even if you’re a savvy business owner, a qualified accountant can save you time, money, and stress. They can:

• Prepare and file tax returns correctly

• Ensure you claim all allowable expenses

• Help with business structuring (sole trader vs company)

• Assist with GST and payroll filings

• Provide financial reports for better decision-making

Costs for accounting services are fully tax-deductible.

7. Upcoming Tax Changes (2025)

As of July 2025, here are a few notable updates that small business owners should know:

• Increased IRD scrutiny on digital transactions: IRD is stepping up its review of electronic payments (e.g., EFTPOS, online platforms) to ensure income is fully declared.

• Possible increase to minimum wage in 2026: Plan ahead for labour cost increases if your business relies on wage earners.

• Sustainability reporting incentives: Government grants may soon be available for small businesses that measure and report their carbon impact.

8. Final Thoughts

Tax doesn’t have to be a headache for New Zealand small business owners. By understanding your obligations, keeping good records, and claiming the right expenses, you can improve cash flow and reduce your tax bill.

Whether you’re pouring flat whites in a Christchurch café, running a boutique in Wellington, managing a retail chain in Auckland, or balancing books from home, staying informed and compliant is the best investment you can make in your business.

For tailored advice, always speak with a registered accountant or tax advisor who understands your industry.

Need Help?
If you’re unsure what you can claim or how to set up your business for tax success, talk to a local accountant or check out www.ird.govt.nz for guides and tools.