Quick answer
Software subscriptions are deducted as you pay them. Software you own is a depreciable asset at 40% diminishing value or 30% straight line, unless it cost $1,000 or less, in which case the low-value asset rule lets you deduct it in full immediately. Overseas SaaS should not carry GST once the vendor has your GST number. Keep the licence terms, because they decide which treatment applies.
Is software tax deductible in New Zealand?
Yes, and the first question is whether you bought access or an asset. Inland Revenue distinguishes revenue expenses, which are deductible, from capital expenses, which are not, and software splits cleanly along that line. A monthly or annual subscription to Xero, a design suite, or a project tool is a revenue expense: when you stop paying it stops working, so there is no enduring asset. A perpetual licence, a purchased ERP module, or a custom-built system is capital and is deductible through depreciation.
The depreciation rates come from Inland Revenue’s general rate schedule, IR265, which was last reissued in March 2026. Software is rated at 40% diminishing value or 30% straight line, reflecting a four-year economic life. That is slower than computer hardware, which is rated at 50% diminishing value or 40% straight line. You choose the method asset by asset and apply the rate to the business-use proportion.
Two shortcuts take most small purchases out of the depreciation schedule entirely. The low-value asset rule allows an immediate deduction for any asset costing $1,000 or less, a threshold that has applied since 17 March 2021. For GST-registered businesses the $1,000 is measured excluding GST. The rule is lost if the asset is bought at the same time from the same supplier as other assets with the same depreciation rate and the combined cost exceeds $1,000, which stops a $4,000 licence bundle being split into five receipts. The second shortcut is pooling: low-value assets can be grouped into a pool and depreciated together at the lowest rate in the pool.
Employees cannot claim software they buy for work against their salary; New Zealand’s employment limitation blocks it. A business that reimburses an employee for a work-related subscription can deduct the reimbursement and the employee is not taxed on it.
How much can you claim?
Subscriptions: the business share in the year. Owned software: the depreciation deduction each year, or the full cost immediately if $1,000 or less. Worked example: a Christchurch surveying firm pays $7,200 a year in design and accounting subscriptions, buys an $890 plug-in licence, and commissions a $24,000 field-data system in the year. The subscriptions are deducted in full. The $890 licence is under $1,000 and is written off immediately. The $24,000 system is depreciated at 40% diminishing value, giving $9,600 in year one, $5,760 in year two, and so on, pro-rated by the months owned in the first year. First-year deductions total $17,690.
| Software | Treatment |
|---|---|
| Subscriptions, term licences, cloud services | Deductible as incurred |
| Owned software costing $1,000 or less (GST exclusive) | Immediate deduction, low-value asset |
| Owned software over $1,000 | Depreciate at 40% DV or 30% SL |
| Bundle from one supplier totalling over $1,000 | Depreciate, no low-value write-off |
| New website build | Capital, depreciate as software |
| Website updates, hosting, domain renewals | Deductible as incurred |
Mixed use reduces the figure: a sole trader using a $1,500 a year suite 70% for business claims $1,050 and 70% of any depreciation on owned software.
GST on software
New Zealand-billed software carries 15% GST, claimed as input tax at the business-use percentage with taxable supply information appropriate to the amount. Overseas vendors are the pressure point. Since the remote services rules took effect, non-resident suppliers must charge 15% GST to New Zealand consumers, but a registered business that supplies its GST number should be invoiced without GST and treats the purchase as zero-rated. The reverse charge only applies where less than 95% of the use is for making taxable supplies. Use the GST calculator to split inclusive prices and the New Zealand GST guide for the rules.
Record-keeping requirements
Keep the licence terms as well as the invoice, since the terms prove whether you bought a term of access or a perpetual right. Keep subscription renewal invoices, and for owned software a fixed asset schedule with the purchase date, cost excluding GST, method, rate, and business-use percentage. Records must be kept for seven years. The New Zealand record-keeping guide covers digital storage.
How to claim, step by step
- Classify each software cost: term access is revenue; perpetual licence or custom build is a depreciable asset.
- Deduct subscriptions at the business-use percentage in the income year.
- Apply the low-value asset rule to owned software costing $1,000 or less, checking the same-supplier bundle test.
- Add other owned software to the fixed asset register and depreciate at 40% DV or 30% SL.
- Give overseas vendors your GST number so they invoice without GST; claim input tax on New Zealand-billed software.
- Review subscriptions at year end and cancel idle seats.
Common mistakes
- Depreciating a monthly subscription because it is “software”.
- Applying the 50% computer rate to purchased software instead of the 40% software rate.
- Splitting a licence bundle into sub-$1,000 invoices to force the low-value write-off.
- Paying GST to a US vendor that was never given the GST number, then claiming it as input tax without valid taxable supply information.
- Expensing a full website build as marketing.
Software that helps
- Dext captures renewal invoices from email and codes recurring vendors consistently.
- ExpenseFlow reads software invoices with frontier vision AI, tells a subscription from a perpetual licence or build, explains the call under each line, lowers its confidence for review when the invoice does not say which, flags overseas bills that need reverse-charge or import treatment, and syncs the approved result to Xero with the invoice attached, or to QuickBooks Online as a coded bill.
- Xero includes a fixed asset register that applies the 40% diminishing value rate and pro-rates the first year.
FAQ
See the answered questions above for subscriptions, depreciation rates, the $1,000 write-off, websites, and overseas GST.
From ExpenseFlow
GST coding on autopilot
ExpenseFlow reads every receipt, assigns the right GST treatment and account code, and syncs to Xero or QuickBooks Online once you approve.