If you have a vehicle that is only used for business purposes, you can claim the full running costs as a business expense. If you use your vehicle for both business and personal trips you will need to work out how to allocate costs correctly. Travelling from home to work is a personal trip.
There are 3 ways to do this – keeping a logbook, claiming 25% of the vehicle’s running costs or adding up the actual costs. The IRD publish the kilometre rates after each tax year ends on 31 March (usually published in May).
If your vehicle is petrol, diesel, hybrid or electric you can use either method. You need to continue to use 1 method for as long as you own the vehicle. If your vehicle isn’t petrol, diesel, hybrid or electric then you must use the actual costs method.
Kilometre rates:
Once you have calculated the business proportion for the 2023-24 and later income years, you can choose to use kilometre rates to calculate the amount of allowable expense for the cost of using your motor vehicle for business purposes. You can do this by using the following calculation:
Calculating cost of using your motor vehicle
kilometre rate x kilometres travelled x business proportion
Where:
- kilometre rate is one of the rates below
- kilometres travelled is the total number of kilometres travelled for business and personal purposes
- business proportion is calculated, using actual records or the logbook method, as a decimal
| Vehicle type: | Tier 1 rate: first 14,000 kms | Tier 2 rate: after 14,000 kms |
|---|---|---|
| Petrol or diesel | 1.04 cents | 35 cents |
| Petrol hybrid | 1.04 cents | 21 cents |
| Electric | 1.04 cents | 12 cents |
Actual costs:
You can use the actual costs option if your vehicle costs are higher than the rates given.
You can claim deductions on your actual costs including depreciation loss for the business use of your motor vehicle. If you use this method you must keep accurate records including details of private and work-related expenses. Your records will need to show the reasons for and the distances of journeys for business travel.
Logbook:
You can also work out the business use of your vehicle by keeping a logbook for at least 90 consecutive days. After 90 days you can work out the average proportion of business to private use of your vehicle. The logbook term is up to 3 years, provided variance of business use is less than 20% of the logbook representation. After 3 years you will need to keep a logbook for another 90 days.
The logbook must record the:
- start and end of the 90-day test period
- vehicle’s odometer readings at the start and end of the test period
- distance of each business journey
- date of each business journey
- reason for each business journey, and
- any other detail the IRD may ask you for
You can use your logbook to calculate the deduction for the costs you incur and the amount of depreciation loss for the business use of your motor vehicle.
If you’re a close company with shareholder-employees
From the 2017-18 income year the kilometre rate is available to close companies where the only fringe benefit provided is the provision of one or two motor vehicles to shareholder-employees for their private use.
Close companies can elect to use the motor vehicle expenditure rules instead of paying FBT on the value of the benefit when the close company makes a motor vehicle available to a shareholder-employee for their private use and elects to apply the kilometre rate method.
The election will apply only to new arrangements between a company and shareholder-employees and once a company has chosen to use the kilometre rates method it will need to continue to use it until the vehicle is disposed of or the company stops using the vehicle for business use.
In some circumstances a GST adjustment may be required to reflect any difference between the actual proportions of business and private use of the motor vehicle and the intended proportions of business and private use of the motor vehicle.
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