Business expenses: what you can claim

Tax is charged on profit, not turnover, and expenses are the difference between the two. Every legitimate business cost you claim comes off your income before the brackets apply, so expenses are the most reliable way a contractor has to reduce the tax bill. They also attract a lot of bad advice. This guide covers the principle, the categories contractors actually claim, the two special rules worth knowing by name, and the records that make a claim stick.

The principle: incurred in earning your income

An expense is deductible when it was incurred in earning your business income. If it's fully business, it's fully deductible. If it's fully private, it isn't deductible at all. If it's partly both, you claim the business share and leave the rest: a phone used 70% for work is a 70% claim, and the honest split is the one you can defend later.

What contractors commonly claim

• Tools of the trade: equipment, software subscriptions, professional memberships, industry insurance, and training that maintains the skills your business already sells.
• Professional services: your accountant, legal advice for the business, bookkeeping tools.
• Work costs: materials, subcontractors, work travel (flights, accommodation, mileage on business trips), client-site parking.
• The business share of mixed costs: phone and internet, and the home office and vehicle claims covered below.
• Bank and payment fees on business accounts.

The common thread: each one traces to earning the income. A cost that would exist anyway in your private life doesn't become deductible because you also work.

The $1,000 asset rule

Business assets normally spread their deduction over several years as depreciation. The exception that matters for contractors is that an asset costing $1,000 or less, before GST, can be claimed in full in the year you buy it. A $900 monitor is an immediate deduction, while a $3,000 laptop depreciates over its life. Where a purchase naturally splits into items that each sit under the line, they can qualify individually, but artificially splitting one asset into parts does not.

The entertainment 50% rule

Hospitality with a private element, such as taking a client to lunch, shouting the team dinner, or the end-of-project drinks, is 50% deductible, regardless of how business the conversation was. Fully business entertainment, such as food at an all-day training you run, can be 100%. When in doubt, claim half, which is the rule Inland Revenue audits with.

Home office and vehicle, briefly

Both are real claims with defined methods rather than estimates plucked from the air:

• Home office: claim the business share of household costs, based on the floor area you genuinely use for work, either from actual costs or using Inland Revenue's published square-metre rate.
• Vehicle: claim business travel by logbook (actual-cost share) or by the per-kilometre rates. Commuting from home to a regular workplace is private, not business.

Each method has trade-offs that deserve their own guide; until those are published, the References below link Inland Revenue's pages for both.

If you're GST registered

Expenses do two jobs at once: you claim the GST portion back through your GST return, and you claim the GST-exclusive cost as an income tax deduction. That also means keeping the supplier's taxable supply information (the invoice or receipt) for anything you claim; the invoice guide covers what those documents must contain.

Records make the claim real

Every claim needs its paper: receipts and invoices kept for seven years, and for split claims, the basis of the split, such as the logbook, the floor plan, or the usage reasoning. The habit that works is capturing the receipt when the expense happens, rather than reconstructing a shoebox in April.

How Coffer helps

Coffer records your business expenses alongside your invoicing. Confirmed expenses feed straight into its tax math: it works out your projected income tax on your income after the deductions you've recorded, which lowers what it ringfences from each payment. The help article on expenses covers the day-to-day workflow.